Wrap-up insurance

Today’s large construction projects are
becoming more difficult to finance
thanks to escalating raw materials costs, increased litigation and lack of control. These projects demand creative solutions to shrink the cost of construction
while creating a safer job site.

“For owners and builders of large projects, a wrap-up insurance program may be
a money-saving option that solves a lot of
claim headaches,” says Larry Dwyer, vice
president, account executive, Gateway
Insurance in Fort Lauderdale, Fla.
“However, many subcontractors do not
like working under this type of insurance
and often the paperwork and hidden costs
they face are more costly than using their
own insurance.”

Smart Business recently spoke with
Dwyer about who qualifies for a wrap-up
policy, who must participate and who actually benefits from this unique and comprehensive insurance coverage.

What is a ‘wrap-up’ insurance program?

The term ‘wrap-up’ refers to a policy that
covers not only the owner and/or general
contractor (GC) of a project but all, or at
least most, of the subcontractors working on
that project, as well. Typically referred to as
an Owner-Controlled Insurance Program
(OCIP) or Contractor-Controlled Insurance
Program (CCIP), these policies cover all participants for covered claims that occur at the
specified location and provide significant
savings based on proactive loss prevention
and savings similar to a quantity discount.
Typically the wrap-up program provider
places an on-site claims adjuster to oversee
and contain claims quickly to limit the cost of
any claim, and this adjuster is part of the
wrap-up cost. Wrap-up programs usually
cover general liability, property and workers’
compensation claims, but in recent years, we
have seen some policies exclude workers’
compensation coverage.

Who would qualify for a wrap-up?

Owners of a single construction project of
$100 million or more or GCs whose projects can be combined and cover more than
$100 million a year typically qualify for wrap-up insurance. The actual value
amount may differ by the company providing such programs, however, they are typically only provided on very large projects
due to the costs associated with implementing and overseeing such a program.

If a wrap-up program is in place, are all sub-contractors forced to participate?

No. The provider of the program may
exclude specific subcontractors for various
reasons such as a poor loss history, the wrap-up provider does not cover the work performed, or the provider allows the subcon-tractor to opt out of the program. Suppliers to
wrap-up projects typically are not participants because they do not perform work on-site, but people like equipment providers —
who may service their equipment on-site —
may be forced to become a participant.

Does the wrap-up provide any cost savings to
subcontractors?

No. While work covered by a wrap-up is
excluded from the subcontractor’s policy,
the wrap-up administrator will charge an insurance deduction against the total contract amount with that subcontractor. This
deduction is intended to be the amount the
subcontractor would have paid were this
project covered under their own insurance
so no savings will be had by removing this
project from their policy. In reality, the
additional burden of paperwork and lower
volume of work covered by their own policy both add indirectly to the costs incurred
by subcontractors. In addition, the wrap-up
administrator can reclassify workers or
overcharge the deduction based on incorrect subcontractor payroll or policy rate
information. This can lead to higher than
actual costs if not disputed properly.

The wrap-up administrators also may
require a subcontractor to purchase additional insurance not previously purchased.
This may include increased liability limits,
waiver of subrogation endorsements, additional insured endorsements and other items
that do not apply to on-site claims but will
still increase the subcontractor’s premium
costs on their own policies.

Will claims covered by the wrap-up show on
a subcontractor’s losses?

When a general liability claim occurs on-site, the wrap-up policy will cover the
claim and, normally, the subcontractor’s
insurance will not be notified or participate
in that claim. If there is a workers’ compensation claim, the claim information will
be reported to the NCCI for experience
modification calculation purposes but not
to the subcontractor’s carrier. Thus, if a significant claim occurs under a wrap-up program, the subcontractor’s own loss runs
will not show this claim and they do benefit. Conversely, good loss experience on
wrap-up projects is also excluded from the
subcontractor’s own policy, so any losses
incurred under their own policy result in
higher loss ratios due to lower incurred
premiums. <<

LARRY DWYER is vice president and account executive with Gateway Insurance Agency in Fort Lauderdale, Fla. Reach him at (954)
735-5500 or [email protected].