COMPREHENSIVE INSURANCE COVERAGE FOR ALL
Purchasing power equals better coverage, which means a more comprehensive insurance policy that covers every aspect of the job site. This translates to no gaps in coverage or expired subcontractor policies.
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Available insurance coverage under the OCIP/CCIP typically includes:
- Workers Compensation and Employers Liability (Injury to Employees)
- General Liability/Completed Operations (Injury to Third Parties or Third Party Property Damage)
- Excess/Umbrella Liability (Provides high limits of insurance) not additional coverage but additional limits
When appropriate the following can be included:
- Builders Risk (1st Party Property Damage to property that will become a permanent part of the project)
- Professional Liability (Covers liability arising out of architect, design, and engineering errors)
- Environmental Liability (Covers liability arising out of environmental impacts)
- Contractor Default Insurance (Covers default of subcontractor, a replacement for surety bonds)
Dealing with an ever changing market, residential exclusions
Large multifamily residential complexes and subdivisions are becoming more and more difficult to cover. Many insurance carriers have dropped residential coverage for contractors due to excessive claims, or the residential coverage is still available but at a prohibitive price. The purchasing power of a wrap-up allows the coverage to be purchased and allows smaller contractors access to bid on a project otherwise unavailable to them.
Subcontractors will still be required to carry certain insurance coverage for the protection of themselves and the project team. These include:
- Contractors Equipment (Cranes, Mobile Equipment, Small Tools)
- Workers Compensation for activities unrelated to this project
- General Liability for activities unrelated to this project
- Excess / Umbrella Limits as required by contract
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HIGHER LIMITS OF COVERAGE
An OCIP sponsor has greater insurance purchasing power than individual contractors and subcontractors, making them better equipped to procure a quality, efficient, and cost effective insurance package for all parties engaged at the project site. Greater purchasing leverage means better coverage for the entire project and higher limits.
Why are higher limits so important?
Imagine you are the owner of a large project that experiences a heavy loss. After your subcontractors’ insurance limits have been reached, there are remaining damages. These costs fall upon you, the owner, to cover. With a wrap-up, your potential financial risk is managed more effectively. A wrap-up protects you and your project because an OCIP/CCIP offers very high limits of insurance, all 100% dedicated to the construction activities at your project site(s).
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SAFER CONSTRUCTION SITE
A wrap-up offers one standardized safety program for the project to which all parties adhere, rather than many individual versions per contractor. Loss Control Services are available under the OCIP/CCIP through various service providers including the owner, the contractor, the insurance carrier, the broker the program administrator, or through a third party vendor that specializes in providing loss control services for the construction industry. A single safety program must have a coordinating entity to monitor loss control vendors. Often, one or two safety individuals are dedicated to objectively oversee and coordinate the safety program for the project. This means having a system in place to continuously monitor project performance and take rapid steps to target and correct safety issues.
What does a site safety program typically entail?
- Dedicated safety personnel visiting periodically from your loss control vendors – one from your broker and one from your insurance carrier
- A full time site safety person provided by the general contractor who coordinates the entire safety program while monitoring the site and the loss control vendors
- Your insurance carrier will set additional safety requirements beyond those required by OSHA (e.g. for every 50 people on the site, one employee is dedicated part time to site safety as part of their full time job description)
- Incentives (like lunches and t-shirts) for accident free work zones motivate everyone on the project from the top down
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One insurance carrier for your project means quicker claim turnaround and less time spent on paperwork and cross litigation before deciding who pays for your claim. Cross litigation is a major downfall of the traditional approach to large projects. It is expensive and creates hostility in the workplace by pitting individual’s and their independent carriers against one another, and consumes an inordinate amount of time with paperwork for everyone. The only parties that stand to benefit financially from cross litigation are the insurance company that eventually wins a suit and the attorneys involved for each side. With an OCIP/CCIP your insurance provider is concerned with your claim, not trying to make money off your injury, because they are paid up front and serve everyone on the site.
For example, let’s say I get hurt on the job. I report this to my insurance carrier, but it’s actually the plumber’s fault that I got hurt. My insurance carrier then sues his insurance carrier. They, in turn, sue the insurance carrier of the guy that hired the plumber, who decides that it is the fault of the prime contractor, then the general contractor, then the owner. After all this, someone blames it on the guy who got hurt in the first place, me, and we’re back to square one. In a wrap-up the insurance carrier services your claim and gets you back to work.
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ELIMINATION OF REDUNDANCIES IN BOTH COST AND SERVICES
One job site, one loss control manual specific to the job at hand that applies to everyone on site, and one carrier to administer it all. This means everyone on site follows the same loss control procedures and consolidated claims handling, saving staff time and money. The Loss Control Manual is developed for every OCIP/CCIP to address the specific risks of the project, rather than the general needs of the field. The manual considers risks such as location, project scope, traffic, etc.
Some things a Loss Control Manual would take into account
- Local population (Manhattan suburb or Alaskan village?)
- Proximity to railroad tracks, major intersections, popular attractions and so on
- Landscape concerns like water diversion, sink holes, intense digging
- Specific concerns for project scope, like those for an extremely tall project where there are tie off minimums for particular heights to factor in, etc
Where to find savings through administrative efficiencies
- Consolidated claims through one administrator speeds up the turn around time so an injured person gets the care they need quickly, no waiting to determine who’s policy covers what
- Because one party handles claims there is no need for costly legal counsel
- Carrier site visits allow the carrier to check on their wrap-up as well as the individual contractors, ensuring that the site is adequately covered.
- Documentation, like Conflict of Interest forms that are typically gathered and tracked by the general contractor, is handled instead by the administrator.
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ECONOMIES OF SCALE
A large project or a combination of mid-sized projects will benefit financially depending on several factors, such as: location, type of construction, the construction manager, the subcontractor environment, the insurance market, and how the OCIP is purchased in the insurance market. By underwriting a large project, your insurance company spreads the risk across the large number of project employees. Two cost factors influence your financial savings, Fixed and Variable:
Fixed Costs: These costs are built into the project. Traditionally, a subcontractor includes insurance costs in his bid, then the general contractor includes their insurance, and the owner adds contingency coverage on top of that creating three tiers of insurance, paid at higher, individual rates. In a wrap-up your project saves by lowering the fixed cost portion. Due to economies of scale you can purchase a single plan for the entire project for less than the traditional cost of insurance. With a single insurance carrier you purchase your insurance in bulk, so you have more participants paying less for greater coverage.
Variable Costs: The variable portion is dependent on the amount of risk the sponsor assumes and the number of claims made over all. The higher risk might mean the sponsor covers a $250,000 deductible per claim for the overall project. This provides incentive for safety first and a strong claims management program. The safer the site, the more money the sponsor saves.
By negotiating savings to lower your Fixed costs at the outset, and accepting higher risk variables to reward low-incident sites, your project saves a great deal of expense.
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ALLOWS FOR COMPETITIVE USE OF MBE & WBE COMPANIES
Wrap-ups level the playing field so that smaller businesses, like Women and Minority Business Enterprises (WBE & MBE), have equal opportunity to get on the job. Some owner and government run projects have built in incentive programs to encourage the use of MBE and WBE companies. WBE/MBE contractors often can’t afford the kind of insurance needed to qualify for large projects, so they don’t have a chance to bid. But a wrap-up has the purchasing power to get the insurance needed at a more reasonable price for everyone on the site. Umbrella coverage for all contractors allows for competitive bidding among big and small subcontractors equally. By providing coverage to all contractors through a wrap-up, the cost of insurance can be removed from the bid prices so that insurance costs are no longer a factor in choosing the lowest or most qualified bidder.
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WHEN IS A WRAP-UP A GOOD IDEA?