Wrap-up Insurance Programs for Construction Projects

Are you a construction project owner interested in saving money on your project-related insurance and avoiding delays and finger-pointing if a claim arises? Are you a contractor who has been asked to enroll in something called a “wrap-up”? This post is for you.

What Is Wrap-up Liability Insurance?

Sometimes referred to as controlled insurance programs (CIP), wrap-up insurance programs are centralized insurance programs intended to protect the project owner, general contractor and subcontractors under a single insurance policy or set of policies for a specific construction project. A wrap-up program is an alternative to having each party obtain separate liability policies. Project owners and general contractors can use a wrap-up insurance program to manage their specific project risks.

Insurers generally offer two types of wrap-up programs based on the party sponsoring the program:

• Owner Controlled Insurance Program (OCIP): Under an OCIP, the project owner sponsors and controls the program. Accordingly, the project owner is the first named insured, and the general contractor, subcontractors and other participants are additional named insureds.
• Contractor Controlled Insurance Program (CCIP): Under a CCIP, the general contractor sponsors and controls the program. The general contractor is the first named insured, and the subcontractors and other participants are additional named insureds. Depending on the program, the project owner is either an additional insured or named insured.

While wrap-up programs are most frequently used for large, single-site projects (e.g., $100 million in hard costs), a rolling wrap-up can be used to insure multiple projects under one program. Other characteristics of a wrap-up include, but are not limited to, the following:

• Coverage is in force for a finite duration
• Coverage is reflective of the legal jurisdiction
• Control lies with one entity
• There is a large labor component

What Coverage Types Do Wrap-up Programs Provide?

Although each wrap-up program is designed to meet the needs of the specific project, most programs will include workers’ compensation, employer’s liability, general liability and excess liability coverage. Available coverage depends on the project location (e.g., workers’ compensation coverage is handled differently in monopolistic states than in other states). Some wrap-up programs may provide just general liability and excess liability coverage.

It is important to consider areas of exposure that are not insured by the wrap-up. These include but are not limited to the following:

• Builders risk
• Professional liability (errors and omissions)
• Pollution liability (environmental)
• Auto liability
• Contractors equipment

Liability occurring away from the project site (considered “offsite operations”) is generally excluded under wrap-up programs. Accordingly, subcontractors, suppliers, vendors and delivery personnel conducting off-site manufacturing, assembling building components and/or delivering goods and materials may also be excluded from the program.

What Are the Potential Benefits of Wrap-up Programs?

Wrap-up programs can provide several benefits, including the following:

Potential cost savings: They are designed to reduce overall costs through economies of scale and can deliver possible financial savings due to a favorable loss experience on the project.

Consolidated coverage: The controlling entity exerts greater control over the types, scope and limits of coverage. Having one primary program in place for all enrolled participants eliminates duplication and gaps in insurance. Additional coverage benefits include:

• Coverage for completed operations through the statute of repose
• Reduction in litigation and finger-pointing
• Assurance of quality and stability in insurance carriers
• Adequate project limits

Control: Program sponsors, working in conjunction with their brokers, the insurer and safety professionals, can maintain centralized safety and risk management services, resulting in fewer claims on the project. Claims that do occur tend to be handled more efficiently because a single insurer is appointed to manage claims.

Access to projects: Wrap-up programs can provide contractors and subcontractors access to projects they may not have otherwise been able to insure properly.

What Are the Potential Drawbacks of Wrap-up Programs?

Because wrap-up programs often offer a broad range of coverage for many entities, they can be expensive to obtain. However, program sponsors are typically able to reduce costs by selecting higher deductibles or by distributing premium costs to all parties covered under the policy. In these cases, it would be important to understand how payment of deductibles would be allocated.

Wrap-up program sponsors generally inherit additional administrative tasks. Beyond purchasing the wrap-up program, sponsors may be required to review and approve program documents, meet with underwriters and review claims. To address these issues, plan sponsors can designate or hire individuals to help administrate the programs, adding to overall costs.

While wrap-up programs often result in cost savings, they are subject to market fluctuations like any other insurance policy. Accordingly, potential cost savings should be carefully considered.

Implementing Your Wrap-up Program

Correctly implementing a wrap-up program can be a complicated process. There is no “one size fits all” model, and each program needs to be properly analyzed and tailored to meet a project’s specific needs.

If you are interested in insuring your next construction project under a wrap-up, contact Hylant today. We will show you how you can protect your business and projects.

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The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.

Authored By:

Megan Busch, Senior Client Service Manager

Megan has 15+ years in commercial insurance, specializing in construction. As a client service manager, she handles insurance program renewals, contract reviews, project placements and coverage questions.