It’s an accepted fact of construction that an insurance policy (or policies) is a must. But while the traditional approach has been a contractor-controlled insurance program (CCIP), some property owners are seeking to change things up. An owner-controlled insurance program (OCIP) is both paid for and managed by the property owner, which brings the potential for both risk and reward.
Separating Myth from Fact
It can sometimes be difficult to gauge whether an OCIP will work for your situation. You may have heard some of these said about OCIPs:
- The administration burden is too much on the owner.
- The CCIPs are cheaper than OCIPs.
- Safety will be better on a CCIP.
- The credit will be less on an OCIP.
But how many of these are real concerns, and which ones are a myth? In fact, there are many factors driving owners towards an OCIP.
- Control: In an OCIP, the owner’s brokers can design the coverage to better fit the owner’s risks and remain dedicated to the project. This gives the owner freedom to contract outside the general contractor and not be at risk for work that the CCIP wouldn’t insure. Many owners contract outside the general contractor for some trade work or specialized work. Owners may also procure materials outside the general contractor contract. If the general contractor has to be replaced, the owner owns the policy and can make the changes to add a new contractor. In a CCIP, the owner would not only have to replace coverage mid-project (which is expensive), but they would also lose the policy they already paid for through the CCIP; thus, paying for coverage twice.
- Simple Administration: Most OCIPs are accomplished through a general liability wrap administration firm, which does the legwork and works directly with the general contractor’s project team. Therefore, there is little owner involvement after initial binding, meaning no monthly payroll tracking or back-end collateral adjustments. The audit generally closes out on final hard construction costs, not payroll.
- Claims Management: Any general contractor claim involving a construction defect by an owner would be involved in the legal proceeding—regardless of whether an OCIP or CCIP is in place. In an OCIP, the owner and their broker have direct contact and leverage to influence claims handling, versus being a third party to a CCIP, and how the general contractor manages the process with their broker.
- Greater Financial Benefits: A CCIP can be a profitable tool for general contractors because they pass on potential losses to the owner, whether they occur or not. In an OCIP, all the loss savings stay with the owner. The owner is responsible for paying the losses, but the deductibles are smaller and can be capped to put a ceiling on losses (i.e. $50k capped at $500k ceiling). Most general contractors charge owners 100% of the premium up front. In an OCIP, the developer could finance those premiums to spread out the cash flows.
