Construction projects typically involve multiple layers of participants. A developer (or owner) hires a general contractor (GC). In turn, the GC hires a collection of subcontractors. As projects grow, sometimes subcontractors even hire additional specialists to support them. This leads to a cascade of companies, each contributing their own work to an overall project.
From an insurance standpoint, managing these multiple layers can become increasingly challenging as projects grow in complexity. In a standard project, each contracted company should bring their own insurance coverage. Whether it is an electrician, plumber, or carpenter, each company should have its own set of insurance policies including general liability, auto liability, workers compensation, and other relevant policies that may include professional, environmental, and others. It is typically the job of the general contractor to vet each subcontractor and all their insurance policies. Dates and policies must be tracked. Special clauses such as “additional insured” wording and waivers of subrogation must be verified. As the layers grow, this can be a gargantuan task.
In large-scale construction projects, there needs to be an easier way to manage risk. This is where Owner-Controlled Insurance Programs (OCIPs) and Contractor-Controlled Insurance Programs (OCIPs) come in.
What Are CCIPs and OCIPs?
Owner-Controlled Insurance Program (OCIP)
Contractor-Controlled Insurance Program (CCIP)
In an OCIP or CCIP, a master insurance policy is purchased for the entire project site by either the owner (OCIP) or contractor (CCIP). Every subcontractor that walks onto the project site is automatically covered by the master policy while they are on the project site. The master policy trumps the subcontractor’s own insurance policies and provides the primary coverage. OCIPs and CCIPs contain a combination of general liability, auto liability, workers’ compensation, builders’ risk, and other coverages.
While on an OCIP or CCIP controlled project, the insurance policies of the subcontractor typically don’t apply, and you’ll often find specific exclusions in a contractor’s policy if they are working on an OCIP/CCIP location. The only real distinction of an OCIP or CCIP is whether the policy is controlled by an owner or general contractor.
Key Advantages of OCIPs and CCIPs for Large Projects
-
Cost Savings Through Bulk Purchasing One of the most compelling benefits of OCIPs and CCIPs is the ability to aggregate the insurance needs of all stakeholders under a single, centralized policy. This consolidated approach can reduce overall premiums by leveraging bulk purchasing power. Since the OCIP/CCIP replaces the subcontractor’s insurance, they should remove their cost of insurance from their bids, essentially transferring the cost of insurance straight to the GC.
-
Streamlined Claims Management Construction projects are often fraught with unforeseen circumstances that can lead to claims. Managing multiple claims across different insurance policies can create administrative inefficiencies and delays. CCIPs and OCIPs streamline this process by centralizing claims handling under one policy, allowing for quicker resolution and consistent oversight.
-
Unified Coverage Across the Project These policies allow the Owner or General Contractor to dictate the coverage of the master policy such that there aren’t gaps created by varying types of policies purchased by each subcontractor. They also allow more customized coverage applicable to the specific project.
-
Minimized Risk of Litigation Between Parties One of the common sources of friction in construction projects is the dispute over insurance responsibility. OCIPs and CCIPs eliminate this issue by establishing unified coverage for all parties from the start. This unified coverage with its simplified claim process eliminates the potential of multiple parties suing each other over liability.
OCIPs and CCIPs Sound Great – Why Doesn’t Everyone Get Them?
These policies typically make sense only on large enough projects. There are several issues that must be overcome to make an OCIP or CCIP work.
Owner or Contractor Must Have a Risk Control Capability This is the largest roadblock to having this coverage. An insurance carrier is essentially turning a blank check over to the Contractor to cover anyone / everyone that the Contractor allows on the job site. The entire value of insurance carriers is to evaluate the riskiness of a contractor and decide whether they are insurable. If you come to a carrier with five claims in the past two years, it is unlikely that the carrier will provide coverage, which is how carriers weed out the bad actors. In an OCIP/CCIP, the carrier is yielding its risk evaluation job to the General Contractor (GC). But this means that the GC must be capable of doing so. Often this means setting up their own insurance office, risk control program, safety program, which comes with significant overhead. Most small or medium size GCs don’t have the labor or skills to manage such a program.
It Must be Large Enough to Attract an Underwriter OCIP/CCIPs are manually underwritten. This means an employee at the carrier has to individually review applications, rating criteria, and invest time in negotiating rates. This isn’t an automated computer process. This is an expensive process for a carrier. Carriers are going to focus only on those projects large enough to justify their time and capital. Smaller projects just aren’t worth it to them. The threshold of size rises and falls depending on market conditions, but even at the lower limits, we’re still talking about pretty large projects.
A Knowledgeable Agent is Required Because these types of policies are specialized, not every insurance agent is familiar with them. Purchasing an OCIP/CCIP requires an agent that understands construction projects and knows how to access markets appropriately. Owners or GCs that shop every year looking to save a nickel are likely not working with professionals that understand the overall value of a policy (not just the cost).
How to Know if OCIPs/CCIPs a Good Fit for Your Project
For clients with high-value construction projects, both OCIPs and CCIPs offer strategic advantages in managing risk, reducing costs, and ensuring comprehensive coverage across the board. Moreover, these programs provide flexibility, allowing for tailored coverage that meets the unique needs of large and complex projects.
However, unless you can convince a carrier that your organization is competent enough to do the carrier’s job of vetting subcontractor and managing risk on the job site, then you are likely better allowing each subcontractor to bring their own coverage. This tends to be the biggest roadblock with clients. They see some cost savings in insurance premiums but ignore the additional costs of building the internal infrastructure to administer the program. The best type of clients for an OCIP/CCIP are repeat customers that can build the internal capability and then leverage it across multiple projects going forward. These are typically not for “once-and-done” appetites.
At Mt. Franklin Insurance, we understand the complexities and unique risks associated with large-scale construction projects. Whether you’re considering an OCIP, a CCIP, or evaluating traditional coverage options, our team of experienced professionals is here to guide you through every step. We specialize in tailoring insurance solutions that align with your project’s scope, ensuring you have the protection and confidence needed to focus on building success.
