Wrap-Up (Consolidated) Insurance Basics

Wrap-Up (Consolidated) Insurance Basics

If you’re a construction business owner, you know you need to have insurance in place to protect you from financial loss associated with construction projects. While many companies still go the traditional route—requiring each party to purchase their own policy—some are switching to an alternative method of risk management.

Known as a “wrap-up” or consolidated program, this approach allows the project owner to purchase a single policy to cover everyone involved—from the owner and construction manager to the general contractor and subcontractors.  Wrap-up policies typically provide coverage for general liability, builder’s risk and workers’ compensation in addition to other features based on the type of project.

Owner controlled insurance programs (OCIP) and Contractor Controlled Insurance Programs (CCIP) are the most common types of wrap-up programs. Many of their advantages are the same:

  • Cost Savings – Because you’re basically buying insurance in bulk, you can get coverage at a lower cost. This means the premium for the wrap-up insurance policy will be lower than the total of premiums purchased by individual contractors.
  • Efficiency – Because a single insurer is handling all claims, processing is streamlined.
  • Eliminates Duplication – When contractors and subcontractors purchase individual policies, coverage generally overlaps because they have to ensure themselves for the same accidents. This can lead to litigation between insurance companies in the event of a claim.
  • Isolates and Reduces Risk – Wrap-up insurance allows the project owner to isolate construction risks from core operational risks. The owner can also ensure there are no gaps in general liability or workers’ compensation coverage and create a centralized safety program.

Of course, wrap-up programs also have their disadvantages:

  • Administrative Costs – Because the project owner is responsible for purchasing wrap-up insurance, paying premiums and filing claims, he must provide administrative support. This may require an additional internal hire or outsourcing of administrative duties.
  • Upfront Premiums – Some insurers require company owners to make a large upfront premium payment before the start of the construction project.
  • Contractor Resistance – Some contractors and subcontractors prefer to purchase their own insurance. They like to include the cost in their bid and may even generate a profit if their insurance carrier gives them a rebate. Wrap-up insurance can also increase the administrative costs when wrap-up insurance is used because they have to work with a different insurance company than the one that handles the rest of their coverage.
  • Excluded Risks – Some wrap-up policies exclude certain risks such as offsite work, damage to another contractor’s work and pollution cleanup. The coverage duration may also be shorter than that of an individual policy.

As with any insurance policy, should you choose to purchase a wrap-up program, making sure you understand what the policy covers and does not cover is essential. You should also ask your insurer to review all of the policies you have in place to look for potential gaps in coverage and other risks. For more information on your construction insurance policy options, give us a call.