Construction Insurance: The Advantages & Disadvantages of an Owner Controlled Construction Insurance Program (OCIP)
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A Controlled Construction Insurance Program (CIP), also known as a “wrap-up” or Owner Controlled Construction Insurance Program (OCIP), enables a construction company owner or contractor to protect his or her business and various other contractors involved in a construction project under one policy. Typically, Owner Controlled Construction Insurance Program policies cover Commercial General Liability, Excess Liability, Design Errors and Omissions and Builder’s Risk Insurance.
These programs are fairly straightforward; the owner (lead contractor) purchases insurance for all contractors and subcontractors involved in a construction project. Then, all participants will reduce their price by eliminating their insurance costs in exchange for the coverage provided by the owner. Through this process, the owner strives to save money by purchasing insurance for the entire project to avoid paying for contractor markups on insurance costs. Also, by having a single insurance carrier for the project, claim resolution tends to simpler, quicker and less expensive.
Owner Controlled Construction Insurance coverage is outlined in a document known as the “OCIP Manual,” which describes the bid-deduct process, claims management and safety requirements for the project. This document remains a large part of the bid solicitation process and eventually becomes part of the contract documents.
Who is Included in an Owner Controlled Construction Insurance Program?
- The sponsor of the policy (the general contractor).
- Contractors, subcontractors and others involved in the construction project. There may be limits on coverage for subcontractors with contract values over a certain amount.
- Architects and engineers are included as insureds but are not covered for professional liability.
Benefits and Uses of a Owner Controlled Construction Insurance Program
- Can lower insurance costs by lumping coverage into one policy.
- Eliminates contractor markup on insurance costs.
- Can increases coverage limits ($5 million versus $1-2 million for primary coverage). Coverage may also be broader than that obtained by contractors and subcontractors.
- The Owner Controlled Construction Insurance Program administrator takes full responsibility for handling claims and safety initiatives, which may increase loss control objectives of all parties involved.
- Enables a coordinated medical treatment for injuries.
- The insured controlling the project is in charge of all claim handling procedures, which may allow them to avoid public scrutiny and spotlight.
- With a Owner Controlled Construction Insurance Program in place, it is not necessary to obtain Certificates of Insurance from contractors involved in a specific project.
- Owner Controlled Construction Insurance Programs can provide coverage for investigation for work-related accidents and injuries, and defences against claims. This decreases the investigation’s legal costs.
- Coverage brings all participants together as co-defendants in construction defect claims.
- Aggregates are not eroded from claims from other projects.
Disadvantages of a Owner Controlled Construction Insurance Program
- Coverage offered by a Owner Controlled Construction Insurance Program may not be sufficient to replace an existing insurance policy for contractors and subcontractors.
- Owners become responsible for the bid-deduct process, which will require more time and resources.
- Owners may be exposed to a premium increase if labour costs and loss experiences exceed their estimates. However, owners can benefit if claims are less than anticipated through premium rebates.
- May be more difficult to manage contractor and subcontractor performances concerning insurance-related claims.
- May be more difficult for owners to enforce obligations to repair work before disputes are resolved (if the Owner Controlled Construction Insurance Program administrator is delaying adjustment of the claim).
- Obtaining an Owner Controlled Construction Insurance Program may discourage bidders because they are unfamiliar with the coverage, are worried about unfair credit calculations for insurance costs, are nervous about uncompensated overhead and are concerned with a loss of markup costs.
- Owner Controlled Construction Insurance Program deductions may exceed actual insurance costs for contractors and subcontractors.
- Contractors and subcontractors must have their broker or attorney review the Owner Controlled Construction Insurance Program policy thoroughly to avoid gaps in coverage.
- Owner Controlled Construction Insurance Program deduct process may be applied to a single progress payment, which can reduce cash flow. This also affects
- change orders, as the owner generally requests that the contractor provides additive change orders with insurance costs included. If additive changes are significant, the Owner Controlled Construction Insurance Program deduct process for change orders may drag on. Then, the owner may hold final payment until the Owner Controlled Construction Insurance Program administrator is able to calculate the total amount of the deduction for the change orders.
- Since an Owner Controlled Insurance Program policy serves as total coverage, contractors and subcontractors cannot profit from insurance-related administrative cost markups.
Securing the best insurance for your project(s) is critical and complicated. Call 416-302-0885 to speak to an ALIGNED Advocate or connect with us at www.alignedinsuranceinc.com about the best insurance solutions for your project and or organization.
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