Owner Controlled Insurance Programs (OCIPs) in Demand More Than Ever

The effects that COVID-19 has had on the U.S and the world have been unprecedented. For public entities in the U.S., construction projects that were on the verge of starting and those that were mid-term when the pandemic were significantly delayed or entirely halted.

Fast forward to today, fortunately, construction has begun to pick up for many public entities with new projects now moving forward and mid-term projects resuming to a normal pace. More than ever, municipalities are inquiring about implementing an Owner Controlled Project as a means to cut costs, control their own claims destiny and shift the burden of the overall administration process and workload from risk management to the OCIP program administrator.  

Public entities and their stakeholders are taking a deeper dive into many of the other benefits utilizing an OCIP or a rolling OCIP brings to their projects and the public. Below is a further primer on what an OCIP is, what many of the key benefits are and why your entity should consider the significant leverage of being in control in the event of a large loss.

Project Protection

An OCIP is a centralized insurance and loss control program designed to provide protection to the project owner, all contractors and subcontractors for certain insurance coverage while they are on the project site. The recognized benefits of an OCIP over the conventional approach to construction insurance and loss control programs include greater risk control and improved insurance coverage for all involved parties.

Key Benefits to the OCIP Approach

Control
The utilization of a wrap-up allows the owner to control the selection of the insurance coverage for the construction projects, thereby eliminating a great deal of uncertainty for this aspect of the construction project.

Limits of Insurance: The use of an OCIP allows the project owner to purchase dedicated limits of insurance for their project. These limits are typically higher than what is usually required of the contractors on the project.

Quality of Coverage / Insurer: Under a wrap-up approach, the owner controls the decision on the placement of coverage. OCIPs often have superior coverage when compared to the coverage provided by most of the contractors on the project site.  

Safety/Loss Control: Under the OCIP approach there is a single centralized safety plan that all contractors are required to adhere to. This coordinated and focused project specific loss control program is a critical element of a successful wrap-up.

Claim Management/Central Defense: With a single insurance company insuring all onsite operations, there is little opportunity for complicated lawsuits involving multiple contractors, lawyers, and insurance companies to arise from an OCIP environment. This is a significant time and cost saving benefit to all parties involved in the program.

Public Relations 

Increased Contractor Participation: Under the wrap-up approach, project insurance requirements are no longer a potential barrier for contractors to bid on your project.  This will lead to increased participation from disadvantaged, minority and women owned enterprises. 

Insurance Documentation Process: The construction insurance marketplace has made it very difficult for a project owner to get the correct insurance documentation from the contractors on their projects. The use of an OCIP greatly reduces the administrative burden of the project owner to review all of the subcontractor insurance certificates and endorsements for contract compliance. This leads to better relationships with the contractors as well as saving valuable resources for the owner.

Claim Handling: The single insurance placement of an OCIP allows for quicker responses to legitimate claims, therefore keeping all parties satisfied and avoiding negative publicity and press.

Cost Savings 
The cost savings of an OCIP are derived from the structure of the insurance program, the economies of scale and the elimination of insurance charges in the subcontractors’ contract amounts.

Program Structure: OCIPs are typically structured under a deductible approach, where the insurance company charges a minimal fixed cost and a loss fund is set up to handle the potential claims on the project. A properly structured OCIP program will include certain stop loss components or maximum amounts for which the owner is responsible.  This structure allows the owners to capitalize on favorable loss experience on the project without putting themselves at unnecessary risk.

Economies of Scale: The purchase of a wrap-up is a “bulk” insurance purchase. As with any item, there are built-in bulk purchase discounts that apply allowing the owner to purchase the insurance at rates lower than individual contractors. Typically project owners save anywhere between 0.5 % and 1.5 % of their anticipated hard cost under an OCIP approach.

Contractor Insurance Credits: Since the owner is supplying most of the insurance for the construction project, contractors are instructed to remove certain insurance charges from their initial bids, thereby reducing the overall cost of construction. This process is monitored and reconciled typically by the OCIP administrator for compliance and does not add any burden to the owner’s project team.