In todays economic and business climate, large construction projects are becoming more difficult to finance because of increasing costs, lack of control, and rising litigation. Owners and contractors of these projects want innovative solutions to decrease the cost of construction while making the project safer. In recent years, “wrap-up” insurance programs have been used to help achieve both of these goals.
Wrap-ups on large construction projects can be either Owner Controlled (OCIP) or Contractor Controlled (CCIP). Either wrap-up enables the owner to reduce risks and provide a comprehensive insurance program for all participants in the project. While the “wrap-up” concept has been around for almost 40 years, they have only come into widespread use during the last 20 years.
Insurance wrap-ups are most cost effective for larger or multiple property construction projects. Organizations that build multiple projects, and/or maintain large facilities, can also benefit from a “rolling” wrap-up, which is a series of similar projects rolled into one program.
Wrap-ups are regulated state by state based on the type of program, minimum project size, and other potential regulatory issues.
With a wrap-up program, the owner furnishes a single insurance program for all parties involved in the project(s) for duration of the project term. This insurance relates to the exposures of the project and protects the project owner, contractors, and all tiers of subcontractors. Most wrap-ups include workers’ compensation, general and excess liability, and builder’s risk coverages (auto liability and contractor’s equipment is not included). Wrap-ups can include project architects/engineers errors and omissions coverage and other optional coverages.
- Under a wrap-up, the owner experiences a variety of gains:
- Pays the cost of the insurance on a direct basis, as opposed to paying indirectly through inclusion in the contractor’s bids.
- Avoids paying the contingency (e.g., inflation and rate increases) and profit loading applied by contractors to their actual insurance costs
- Eliminates or greatly reduces duplication of premium costs where contractors and each of their subcontractors end up insuring the same cost elements
- Requests bids with/without insurance costs as a bid line item
- Benefits by paying only the ultimate net cost of the insurance; all premium discounts, economies of volume purchasing, and dividends for good experience flow directly to the owner
In addition to the cost savings, the owner experiences a number of benefits:
- A single, coordinated loss control and claims handling program makes for a safer job site, which also results in a project completed on time and under budget
- Broader coverage that meets prescribed standards and provides uniform insurance protection; higher limits can be purchased due to a larger volume of insurance
- The assurance that all parties to the project are insured, instead of reliance on a multitude of certificates of insurance that do not guarantee coverage
- Extended completed operations coverage on the entire project(s)
The strongest factor in favor of a wrap-up is the potential for significant savings in the overall cost of the project(s). The use of wrap-ups can provide substantial savings through dividends or return premium payable to the owner. These are granted based on favorable project loss experience and consolidated premium volume generated under the wrap-up. Additional savings through cash flow management can also be achieved. It is not unusual for A. J. Longo and Associates executed wrap-up to save the owner more than 1 percent to 2 percent (or more) of the project’s hard construction costs.