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PODCAST OPENER
Welcome to the Inside Insight podcast presented by CR Solutions. Conversations with the brightest minds shaping the future of risk. Each episode, we sit down with innovators, leaders, and big thinkers who are transforming insurance, construction, and beyond. Our goal is simple, to share ideas, stories, and connections that help you grow your knowledge, strengthen your network, and spark your next big move. We’re glad you’re here with us on this journey of growth and discovery. Now, let’s dive into today’s episode.
INTRO (00:42 – 01:53)
Trevor Casey: All right, we’re back again with Karen Frankel for part two. We ran out of time on the first one, just due to scheduling, and the amount of information that Karen is able to provide, we did not want to leave it hanging. We scheduled a second comeback. She came back, and we completed at least these set of episodes. I feel like there’s so much more insight that we have to gain from Karen, so we do plan to have her back on the podcast in the future. So please, send your questions, your comments, your concerns. Not, don’t send your concerns. We don’t care about those. But we would love to learn more from Karen, and we’re curious about what the audience has.
Beau Lunceford: Absolutely.
Trevor Casey: So we’re going to keep this one kind of brief, because we went through Karen’s bio in the last episode. If you’re looking for that information, you can pop back to the last episode, less than the first minute and a half or so, and you’ll kind of get the idea of the intro, or the bio, rather. But all of Karen’s information will still be shared in the show notes. So feel free to reach out and connect and learn more. So let’s go ahead and get into it, Beau.
Beau Lunceford: Let’s go.
Interview (01:58 – 33:45)
Trevor Casey: All right, everybody, welcome back to another episode of the Inside Insight podcast. We are here, again, by our friend Karen Frankel, who we have called the queen of Wrap-Ups, or actually, we upgraded her to the mother of Wrap-Ups. I’ve also now added in the Duchess of Deducts, as she’s the creator of the deduct calculation, more or less. So, Karen, thank you again for joining us. We’re really excited to have you back.
Karen A. Frankel: Well, thanks a lot. I thought where I’d start today is just a reminder of where Wrap-Ups came from. So Wrap-Ups started post-World War II when the soldiers came back and they needed employment and the government needed to build projects to keep these workers busy. So the Wrap-Up concept was developed, and the idea was we’re wrapping up the insurance for a construction project, usually a public works in those days. And as a result, there was a master work comp policy and a master general liability policy that was issued on behalf of the project owner. In this case, it was the city of New York. And the contractors were merely endorsed onto the policy by making a phone call to the agent, which was Alexander & Alexander, a precursor to Aon. And a letter was typed up to the insurance company, and they were endorsed onto the policy via an endorsement that came through the mail. And it was that way for a very long time until the oil and gas industry was booming and what they wanted to do was the Shell Oils of the world wanted to Wrap-Up their projects. Unfortunately, they ran into something in Texas called the fictitious grouping law or statute, and that didn’t allow them to co-mingle GL coverage from multiple sources. And the law in Texas required an individual general liability policy as well as an individual workers’ compensation policy. And the general liability policy at that time was experience rated. So now you have Shell Oil wanting to Wrap-Up their project, and the law says you can’t do that. Shell being pretty powerful was able to work with some politicians in the state, and they passed legislation that moved into what they then called a consolidated insurance program. And by the way, it is absolutely and positively illegal to use the term Wrap-Up in Texas.
Trevor Casey: Interesting. That’s not something I’ve ever heard of.
Karen A. Frankel: You can use it as slang, but it is absolutely illegal to put it on any manuals or in contract language or anything because they built their statute around a consolidated insurance program. Now, interestingly enough, a lot of other states got on the bandwagon, and up until maybe three years ago, Michigan was the only Wrap-Up state left in that there was a master comp policy and a master liability policy. The contractors were endorsed onto those policies. If the project went longer than three years, the project developed an experience mod, not the individual contractors. Their experience went nowhere.
Trevor Casey: And you’re saying this is for Michigan? So the project, I’m just curious on that a little bit because I know for payroll, if it’s a byline project, for example, they’re required to report payroll that then is reflective of their experience mod. So how would that affect the program? Because if you had a catastrophic claim on the project, your experience mod traditionally would be affected. So this is on the project basis. So how is it notated? I’m just a little confused.
Karen A. Frankel: And what happened was the insurance companies would audit like normal. They would report it under the policy number of the Wrap-Up to the rating bureau, and the experience would stay there if the project went longer than three years. Now that has subsequently changed. And Michigan, like the other states, now does the traditional reporting against an individual contractor’s experience mod.
Trevor Casey: In the case, let’s say there was a catastrophic claim, would that insure that contractor just not be used by that owner or general contractor again, since it lives with the program, like they know that that happened on that, we’re never going to use them again, or is it just like null and void? Like they just move forward.
Karen A. Frankel: They just move forward as if that never happened. And the Wrap-Up paid for it like they would. And the experience went with the Wrap-Up, not with the individual contractor. So it was a really beautiful thing for Chrysler and Anheuser-Busch and General Motors, who did a lot of Wrap-Ups. I did a lot of them with General Motors and Chrysler over their retooling of their factories. That was another interesting thing. The Wrap-Up concept was originally on the basis of new construction. It was not really intended for remodeling, retooling. So there was legislation that brought an action in Alaska. I was involved at the tail end of the Alaska pipeline and that project was linear. It was new build, but it was linear. And it challenged the concept of Wrap-Up or consolidated or controlled insurance program because it wasn’t horizontal. I mean, excuse me, it wasn’t vertical, it was horizontal. And actually had auto in that Wrap-Up because the vehicles moved as a component of the project. So it moved through the corridor. So that was the only Wrap-Up I’ve ever been involved in that actually had auto as part of the coverage package.
Trevor Casey: Interesting. I’m curious if you’ve seen or you’ve heard like, so roadways. When somebody is doing a new major construction on a road, why they wanted to include auto in that? Because you see a lot of heavy machinery, trucking companies, things that are moving in and out. The pipeline, it makes sense to me. I’m just curious what your thoughts would be because a road would be horizontal and they have a lot of vehicle exposure. What are your thoughts on why they did it on the pipeline?
Karen A. Frankel: The big difference was there were no roads. The pipeline went through territory. And so more or less, I guess you could view it as contractor equipment at that point.
Trevor Casey: Gotcha. So there’s no liability of other drivers, really just trees and hazards.
Karen A. Frankel: Physical damage.
Trevor Casey: Interesting.
Karen A. Frankel: So that was the only one that I’ve ever had with that. Now, it’s very important for the people that are looking to sponsor these programs to look at the state statute because almost every state has a statute that governs the vernacular and the structure of the Wrap-Up. And I don’t know that many people realize that because I’ve seen some naming conventions that wouldn’t fly in the face of the statute’s stipulations. So, again, I want to encourage the brokerage community, the owners out there and the contractors sponsoring these to look up the statute and every state has one. And for instance, Wisconsin, and I don’t know if you guys have administered a Wrap-Up in Wisconsin, but Wisconsin prescribes, first of all, it has to be approved like Minnesota with the department there, the Department of Insurance. Here, the Department of Commerce has to approve them. But there are stipulations on how you go through the process and whether you need approval from the state or not in order to sponsor one. Secondly, the naming convention, Wisconsin, as an example, requires their own administrative forms and procedures. And unlike other states that when you start at the job, your policy incepts and the project then renews, there’s an annual policy. So if the master policy is September to September, but you’re a June contractor and you start in August, I’ve confused everybody, your policy would be August to September and then September to September to September to September until you’re done. In Wisconsin, it defers to your own, as a contractor, policy anniversary dates. So it doesn’t matter when you start on the project, your policy is always going to be your own personal anniversary dates because that rolls into the experience mod.
Trevor Casey: That’s confusing as an administrator to have to keep up with all of those.
Karen A. Frankel: It’s a huge administration burden in Wisconsin because you have to go through the approval process with the Department of Commerce. You have to use their own prescribed enrollment process and reporting forms and close out to the same thing. And then the policy anniversary dates of your 120 or more contractors are all over the board.
Trevor Casey: Oh my goodness. So speaking of some of the complexities to Wrap-Up, I’m curious when did you start seeing limited payroll becoming a factor? Because I know that’s one of, it’s minimal states that have a payroll limitation within the Wrap-Up, Nevada, New York, for example, and it can create a burden for some of those contractors. Do you have any thoughts on when you started seeing that become popular?
Karen A. Frankel: I guess I didn’t realize it had become popular because it’s fraught with all kinds of challenges.
Trevor Casey: I would say it’s very market specific.
Karen A. Frankel: And every project today is delayed and doesn’t finish on time. So you many times need the overtime in order to move into getting a project completed on time and converting that to straight time was a headache enough. Limiting payroll makes it even more challenging.
Trevor Casey: So I’m curious more, you’ve been speaking to the history. We kind of got to just briefly past World War II and speaking to where the Wrap-Up started to form and the controlled insurance program kind of started to key off, where did you see it start heading in from there?
Karen A. Frankel: They became more prevalent. So originally there were three brokers that put these programs together. It was Alexander & Alexander, who was the pioneer in the program. Marsh then joined and Johnson and Higgins, of course, Johnson and Higgins and Marsh merged in 87 and ANA was acquired by Aon that same year. So what we saw was the people who were on those teams, I think I might’ve said in my first podcast, when I entered that space, there were 10 brokers, 10 individuals in those brokerage firms. And there were three insurance companies, Argonaut, Royal and AIG. And there were five underwriters in that space. So that was it. IRMI began in 1980 and Wrap-Ups became a topic at the IRMI conference year after year after year. And what we found was through the IRMI conference, more and more people became aware of them. More and more brokers started hiring. They became very popular in the industry. Bill McIntyre, Jack Gibson and Steve Davis, who were the founding members of IRMI, asked that this was such a popular topic that maybe it should be discussed at the first-round table. So it was brought up at the round table. There was overflow of people standing around listening. So I would say that from there forward to the late 80s, when Aon acquired ANA and Marsh acquired Johnson Higgins, Sedgwick got into it. Then some other brokers started to tiptoe into it as well. And it became just a really hot topic at IRMI every year and standing room only. Then it became a major topic, not just a round table discussion, but a major topic on the table. So I think a lot of people got a little knowledge and then became experts in the arena. And that’s where I think a lot of the bid alternate process that I put in place has morphed to a point where it’s a bit too challenging for contractors. If you have never been an estimator, you have never been a project manager, you’ve never lived through failed jobs, you’ve never worked through the budgets associated with those projects, you don’t know what the challenges are. I did, which is how I created that process. But I never took anybody’s overhead and profit because it was very much a paper system and they needed their overhead in order to do the administration responsibility and then the payroll reporting and the audit opening their books for audit and all of that, so there was still an administrative burden that the contractors live with. So it is, in my opinion, a strong one, not appropriate to take somebody’s profit as part of an insurance process, deduct, add alternate and so forth. In my day, we called it avoided cost. It was identified, but it was not exercised, I should say. So we had the contractors go through a worksheet and identify their costs if they had to provide it. But we never exercised it. Even on projects that I worked on that went bankrupt and the project never finished, we never exercised their insurance alternate in order to continue the Wrap-Up. We couldn’t because it was different ownership in that example. And then Cedric got into it and then Cedric was acquired by Marsh and then other players started getting into it. And now there’s spinoffs of pure administration organizations like you guys, which is necessary because a lot of the national brokers had spent the money, millions of dollars, building technology to administer the programs. Remember, I came up in a paper world, a phone call world, then a paper world, then we automated, but the big houses were then the only ones that were able to sponsor, market, broker the Wrap-Ups. And these systems, I built systems at Marsh when I joined there after 9/11 and retooled their system, Alexander & Alexander’s, Gallagher’s system, McGriff’s system, built a lot of systems over my career to streamline the process because it’s very labor intensive. But now you needed for those local brokers who are local agents and brokers who had relationships with clients that wanted to do a Wrap-Up, but they had no means in order to do the administration. For them to buy a system, they couldn’t afford to do it. For them to build a system, that same thing would apply. Having outside vendors that specialize in administration and the toolkit that goes along with it was the next kind of evolution of the process. I will say that there’s some players out there that haven’t done a very good job of that, so buyer beware, but there’s others that understand the process from start to finish. I was sitting on a panel at IRMI one time with a woman who decided to become an administrator, and she had done one Wrap-Up when she was at Aon, and she was literally on the project site. And after that job was over, she didn’t have any place to go. So she hung her shield out as being an experienced administrator having been on five Wrap-Ups. And the next year she was at IRMI, it was 10 or 15 Wrap-Ups while she was at Aon. I don’t like people that engage in creative resume writing, and there was a question in the audience when she spoke about somebody had found an inconsistency between the program that was broker, the manual that was developed, and how the policies were issued. And they asked the question in the event that there is an inconsistency between the documents which one governs. And her response was, my manual says, but she didn’t broker the deal, she was the administrator, and she didn’t write the contract language. So your manual means absolutely nothing if you’ve created an ambiguity in the process.
Beau Lunceford: Because at that point, the manual is just a piece of paper. It’s not a contract, it’s not a signed anything, this is the expectations, this is how we do it.
Karen A. Frankel: I will say that some people got very clever and they said that the manual is now part of the contract document. Now, that’s okay if it’s consistent with the contract wording. But if it’s not consistent, again, the process really should be, you place the coverage, then you build the contract language, you build the manual, and everything is consistent in what the limits are, how they apply, the coverage grants that are in there, the enforcement and enrollment process and enforcement process, and the closeout process. That all has to be uniform from start to finish, the auditing process. And if you’re not integral in that timeline, in that development process, then your manual really means nothing. Even if you say it’s a contract document, you’ve created ambiguity.
Trevor Casey: I think that’s a great highlight of the quality of an administrator or a broker that is administrating your work. Where do we start? What are we looking through? So at CRS, to our own horn a little bit, as we’re building out the manual, we’re actually taking the binder, putting them side by side. And we don’t just then say, here you go, send it out. It’s being reviewed by the broker, it’s being reviewed by risk managers. Like there’s four, five, six levels of people that are putting their eyes on it before a contractor even gets that document to resolve any of those issues before they would appear. A lot of these contractors are not insurance savvy. They may have somebody in their office who knows insurance, but they’re not necessarily a broker or a person who specializes in construction risk. So it really can create a burden for them. So that’s a great point to highlight.
Karen A. Frankel: And again, the way we used to do Wrap-Ups is that I would fly to Texas, I would fly to New York, I would fly to Denver, wherever the project was, and I’d attend the pre-bid meetings with the contractors. And I would explain in addition to the paper system. And I think that’s been lost, whether with Zoom and whatever teams, it could be brought back in some fashion. But I think it’s disrespectful to the community that’s an involuntary partner of these programs that we don’t take the time to explain the program and be there to answer questions. Because there are a lot of questions. Now, there’s been a lot of history and a lot of advancement from the 80s to today in terms of the prevalence of these programs. So there’s a much more knowledgeable, skilled subcontracting community than there once was. But I still think as a project manager or estimator that’s sitting in the audience at a pre-bid meeting, they have questions. And I think that having a Zoom component that explains the Wrap-Up is something that was effective in the old days. I would dare say it would be effective today if it was done.
Trevor Casey: That highlighted a point that I’ve been speaking with some people about recently with all of the advancements in AI and different technology out there. People are starting to roll out these technologies and they may not have a full grasp or understanding on how they work, how they read, how they provide data. And that’s one of the things that’s slightly concerning to me is as the younger generation comes in, I’m not saying that I’m crazy old or anything, but as people who are 21, 22, 23 are coming into the industry and they’re like, I don’t know X, Y, and Z, I’m going to go ask an AI agent or I’m going to provide this policy or this contract to an AI agent to get an overview of the policy documents, the contract, whatever. And one of the things we’ve been seeing is that some of these AI agents are just spitting out an answer. They may be lying to you or just creating jargon. And I feel like that is starting to be a concern of people saying like, I did not take the time to learn this and understand it, I just put it through an AI agent that spit out a response. So I’m curious in the future what that’s going to look like on some of these construction sites. If, for example, somebody put all this stuff into an AI agent, the manuals created, all of these documents come out inconsistent, is that going to set up for claims or is that going to fall onto a cyber liability policy because it’s AI? And then now we’re having to add another layer into the Wrap-Up. So it’s very interesting to see where we started and where we’re going. And there are red flags, but there’s also a lot of green flags. So I’m excited and hesitant for the future.
Karen A. Frankel: And I think rightly so, everybody’s talking about AI and how it’s going to affect. As a matter of fact, I’m working with a startup group right now on an AI product for construction, not insurance necessarily. It can morph into that. But my interest in helping contractors as from my heritage of being one, so troubling to me that every project finishes over budget and every project finishes late. So from an insurance perspective, we know that if you’re going to put a builder’s risk together for a project today and they give you a 30 month term, you should really place it for 36 because if you try to get a six month extension, it’s going to cost a boatload more premium than if you have the opportunity to buy it and then cancel early. So subject to minimum premiums of course. But I think where we’ve gone from the fast tracking of building today, and I think I might’ve talked a little bit about that in the original podcast, but in my day in the 70s, when I got a set of drawings and scope documents to peruse and then submit a bid on, they were 100% complete. The engineers and architects had taken a long period of time to design and develop those documents to 100% complete. So I had a thorough set of drawings to share with the trades, the electrical, the plumbing, the mechanical teams that came in, the carpentry teams. And they looked at everything and scrutinized it and put a price on the table. We had a lot fewer change orders then as well. Then everybody looked at it and then it was like in the 90s, all of a sudden they said, the front end is taking way too long. So they created a concept called fast tracking where they would design in sequence a build. The drawings and scope docs, they would put them out to bid and they would start construction. And then the next piece would roll out and the next piece in the rollout along the timeline. And what we ended up having was, it moved up the drawing release, the scope release, but they were incomplete. And then you had to bid on it with incomplete so that you’ve got to have a larger contingency percentage that you’re holding back because there’s still a lot that’s not known until you get in there and then you build. And then when you start commingling different trades in the same area, they’re discovering that what maybe had been interpreted of those drawings to fit in a certain location needs to be relocated, which then causes a change, which then causes a redrawing and repricing. So there are a lot more change orders that came out of it. And with today, we’re at 5, 10, 15% design develop when the bid packages go out. So that’s why general contractors are struggling to put a GMP, guaranteed maximum price on the table day one and hold to it. So it could be 12, 18, 24 months before you’re able to reach the guaranteed maximum price. And obviously in the food chain, that affects all your subs. And then there’s an inordinate amount of change orders that are being rolled out as a result of fast-track construction. So what we’re looking at is projects are delayed because of supply chain. The tariffs and the supply chain challenges to it. And now shortage of labor. And a lot of the trades had Hispanic workforce in them that wanted to do that work that nobody else wanted to do. So we’re struggling with labor force. We’re struggling with tariffs. We’re struggling with supply chain. We’re struggling with fast-track construction. And we’re struggling with everything that cuts into the budget and your profit margin at that and the contingency. When the supply chain problems hit, most contractors had 10 to 15% contingency in their pricing. And in the first four months of that year when supply chain was challenged, the materials had gone up 40%. If you have 10, 15% contingency, where are you going to make up the difference? And again, when I was on the construction side, we bid low and got the work and made it up on change orders because nobody had the time to scrutinize change orders to the same level of scrutiny that the initial bid was. So maybe you can hide a few things in change orders, but what does that result in? Cost overrun, project delays. So the construction is a real challenging world today. And with the use of AI, it’s possible to co-mingle data. So contractors have payroll systems. Contractors have software that helps them bid today. A lot of it’s based on RS means that I used in my day. They have BIM. They have different technology silos. The problem is none of those silos populate the data to a central database or any place that you can harvest it. And if the C-suite isn’t aware until a report is generated by somebody, which takes time because I’m pulling this piece, and this piece, and this piece to generate a report. Certainly, the risk manager is not aware that there’s risk because the project is going to be delayed and that he needs to extend coverage if he bought the builder’s risk. There’s all of these things that are siloed and nothing is pulling it together. I’m working with a startup company called BuildSafe IQ, and we’re harvesting the data, historic data, pure data, weather data, so that we can bring that to the forefront along with the project data and instantaneously in a dashboard rather than a report, allow the C-suite to see what’s going on in a project, the risk manager go on in the project so that they can manage their business risk. Insurance obviously would be a piece of that, but less or so. I’m really more concerned about where our industry is that drives insurance. If all of these things are falling apart, how can the construction industry survive in order to sponsor Wrap-Ups and then you guys administer them or a broker. The core of the business is troubling right now, and we need to come up with some solutions. I think I told you guys I tried for two years to come up with a solution to bring people from the southern border and teach them a trade, and I had that all ironed out except for that the work visas take up to three years to get approved, and the immigration attorneys are getting up on that. Now, with the administration being what it is, we’re really struggling to deal with the labor that we need. If you can bring somebody that is here and teach them a trade that will last at least two generations in their family, and they’ll make a living wage, the union wage for a carpenter coming out of an apprenticeship is $52 an hour in Minnesota. That’s a very nice wage even if you pay union dues and taxes out of it. There are solutions out there. We just need some creative minds that are going to work with the ABC, the AGC, and so forth to try and help stem some of the blood shedding that we’re having in our industry right now.
Trevor Casey: Karen, I hope that this podcast and just the education that you’ve put out there to our listeners has triggered some people to start thinking about some creative solutions. I mean, you’ve really given us an incredible history lesson on roughly the last 50 years of Wrap-Ups, and it’s insane how it has started and how much evolution has come from it. You got 50 states doing things all differently, and just your knowledge is impeccable. So thank you so much for the time and the thoughtfulness that you’ve put into this conversation. It’s been great for us, and I hope our listeners take from it more than what we’ve taken from it, which is a lot.
Karen A. Frankel: Well, thank you for the opportunity to share my experience, my story. It’s fun, and I’m close to the big 70, but I still have a lot of passion for this business, and we live well into our hundreds in the North because we’re frozen half of the year. Ethereum cryogenics. Thank you very much for the opportunity.
Trevor Casey: Absolutely, Karen. Thank you, and here’s to the next 50.
Karen A. Frankel: At least 30.
Trevor Casey: There you go. Well, thank you again, Karen, and we will, for all of our listeners, we’ll put any kind of contact information, a little bit more about BuildSafe IQ into our show notes, and feel free to reach out to Karen to learn more. Thank you again, Karen.
Karen A. Frankel: Thanks.
OUTRO (33:50 – 35:38)
Trevor Casey: Beau, I’m proud of you on this one. You kept in line. You understand that technology is moving forward. 2 plus 2 is 4, not 75.
Beau Lunceford: Yeah, it’s tough.
Trevor Casey: And calculators are used in the day-to-day, and phones now replace that.
Beau Lunceford: And you know what, it was a lot of growth for me, and I’m glad to have that recognized, especially on a public platform like this.
Trevor Casey: Your award will be in the mail soon.
Beau Lunceford: Thank you.
Trevor Casey: Karen, thank you again so much for your insight. It’s a cool history lesson to see where these things that we do every day came from, and understanding that it wasn’t always the way things were done, and it may not always be the way that they’re done in the future. A new bidding methodology may come about. A new program may arise. You never know as the world is continuing to evolve and grow, and things are changing. Just your intelligence now being brought into the AI space is very exciting, and I’m curious in a year from now, what BuildSafe IQ is doing with their technology based off of the 50 years of knowledge that you’re bringing to the table. So we definitely are going to have to have you back in a year at least to just kind of see what’s been happening. I mean, that company has probably shot up. They’re just on NASDAQ by then, and building all kinds of crazy new technology. So again, thank you so much, Karen. As always, Karen’s information will be in the show notes, and feel free to reach out to her. She is a wonderful, lovely person to speak to. She is a wealth of knowledge, and her wealth poureth over. So bring your cup. Until next time, stay covered.
PODCAST CLOSER
Thanks for tuning in to Inside Insight presented by CR Solutions. We love bringing you these exciting conversations with the people shaping the future of risk. And we hope today’s episode sparks something new for you. If you enjoyed it, follow, rate, and share the show so more listeners like you can join the conversation. Got a question or idea you’d love for us to cover? Visit c-r-solutions.com/podcast to connect with us or email us at info@c-r-solutions.com. You’ll find all this information, including ways you can connect with our guests in the show notes. That’s a wrap on this episode. Join us next time on Inside Insight podcast presented by CR Solutions. Stay covered.
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