CCIP vs. OCIP: A Guide to Understanding Wrap-Up Insurance Programs

Understanding CCIP vs. OCIP

Construction projects have many moving parts, and in order to remain profitable, project owners, sponsors, and contractors manage many moving parts that impact timelines and costs. In fact, a 2023 KPMG report revealed that 40 percent of construction respondents struggle with cost overruns and project delays. Fortunately, risk management and insurance solutions can help protect projects from the unpredictability they face.

In the construction industry, there are two types of Controlled insurance programs used for projects: Contractor Controlled Insurance Programs (CCIP) and Owner Controlled Insurance Programs (OCIP). Though there are similarities between CCIPs and OCIPs, there are some key differences. In this article, we'll cover the pros and cons of CCIPs and OCIPs so you can explore which option best suits your construction projects.

What is a Controlled Insurance Program?

Controlled Insurance Programs (CIP), also known as wrap-up insurance, offer a streamlined approach to managing risk on large construction projects.

CIPs, such as CCIPs and OCIPs, consolidate general liability and excess liability, and often Worker's Compensation coverage under one program. This helps simplify the process for involved stakeholders including owners, general contractors, and subcontractors. These programs help eliminate the need for separate policies, potentially eliminating redundant costs and gaps in coverage that exist within the various stakeholders own programs.

Types of Controlled Insurance Programs (CIPs)

CIPs, such as CCIPs and OCIPs, consolidate general liability and excess liability, and often Worker's Compensation coverage under one program. This helps simplify the process for involved stakeholders including owners, general contractors, and subcontractors. These programs help eliminate the need for separate policies, potentially eliminating redundant costs and gaps in coverage that exist within the various stakeholders own programs.

Contractor Controlled Insurance Programs (CCIP)

A CCIP is an insurance program procured by the general contractor / construction manager to cover various eligible parties involved in a construction project. Typically, this includes the owner, general contractor, and subcontractors. The project owner or developer is included as an additional insured and provided protection. CCIPs are advantageous because contractors tend to have more experience and expertise handling construction risks, deploying safety programs, and managing the risk than project owners.

Owner Controlled Insurance Program (OCIP)

An OCIP is an insurance program the property owner or developer secures that covers liability and losses from a construction project. With OCIPs, the owner becomes the primary policyholder and manages all aspects of the insurance program. OCIPs function similarly to CCIPs in their scope of coverage but are managed by owners instead of contractors.

Key Differences Between CCIPs and OCIPs

Financial Responsibility

• CCIP: The lead contractor, aka Sponsor, shoulders the financial burden for premiums, deductibles and collateral. This incentivizes contractors to prioritize safety measures and risk mitigation strategies to minimize claims costs. However, it also means they are directly exposed to potential cost increases if claims arise on the project.
• OCIP: The project owner, aka the Sponsor, pays the premiums and deductibles, as well as providing collateral, if needed. This approach appeals to contractors who are not directly responsible for insurance costs. However, it shifts the financial risk to the owner, who may have less control over loss prevention and claims mitigation efforts.

Control and Administration

CCIP

A contractor assumes responsibility for program design and administration. This grants them greater control over several areas, including:

• Policy Selection: The contractor can choose policies that best suit the project's specific needs and risk profile.
• Claims Management: By managing the claims process, a contractor can expedite the resolution process and reduce the claims costs. This can lead to greater negotiation positioning with carriers on subsequent projects.
• Risk Mitigation Strategies: As the policyholder, the contractor has the authority to implement proactive safety measures and risk management strategies to prevent accidents and claims, which helps lower premium and deductible costs. However, greater control also comes with administrative burdens.
• Program Administration: As the Sponsor, the contractor is responsible for ensuring eligible parties are enrolled and compliant with the program parameters and subcontract requirements.

OCIP

The owner takes a more active role in program administration. This gives them control over:

• Policy Terms and Limits: As the policyholder, the owner can tailor the policy to their specific risk tolerance and desired level of coverage.
• Transparency and Oversight: By directly overseeing the program, owners gain greater control over alignment with risk management goals and budget expectations.
• Program Administration: The owner assumes responsibility for ensuring program administration is compliant.

Potential Cost Advantages

• CCIP: Contractors with a strong safety record may qualify for lower premiums due to their preferred risk profile. This translates to potential cost savings for the project. However, this means that the contractor also takes on additional costs if/when claims occur.

• OCIP: Owners might benefit from economies of scale, especially with large, multi-year projects. By insuring multiple projects under one OCIP program, they can negotiate more favorable terms and lower premiums from the insurer.

Comparing the Benefits

CCIP Strengths & Weaknesses

Strengths:

• Potential cost savings for contractors with good safety records: When contractors consistently prioritize safety, this leads to improved rates as well as preferable program terms and conditions from insurers. This can translate to lower premiums for the CCIP program, leading to cost savings that can be passed on to the project and improved profit margin.
• Increased control over risk management and claims handling: Contractors can be proactive by implementing and investing in safety measures like regular safety training for workers, a comprehensive site safety program, rigorous equipment inspections, and robust protocols for handling hazardous materials. Additionally, having direct access to the claims process provides insights that may help prevent future claims scenarios, as well as greater control over the resolution process.
• Streamlined insurance process: CCIPs typically involve a single insurance program encompassing all covered parties. This simplifies communication and administration compared to traditional methods where each party insures through separate insurance policies potentially leading to conflicting terms and exclusions.

Weaknesses:

• Added administrative burden for the lead contractor: Managing a CCIP program is an additional responsibility for a contractor to manage.. Managing the program administration, claims management and loss prevention requires time and resources.
• Potentially greater costs for contractors with limited CCIP experience: Understanding the nuances of CCIPs may be a complex undertaking. Understanding risk management best practices loss prevention and claims handling processes requires dedicated expertise.
• Premium increases due to claims activity: Since the contractor pays the premiums, any claims filed during the project can directly impact their bottom line. A higher number of claims can lead to significant premium increases for future projects.

OCIP Strengths & Weaknesses

Strengths:

• Lower administrative burden for contractors: The owner takes on the responsibility of program administration, freeing up the contractor's time and resources to focus on core construction activities. This can be particularly beneficial for smaller contractors with limited administrative staff.
• Potential cost savings for large projects: Owners with a portfolio of large, multi-year projects can leverage economies of scale when securing an OCIP. By insuring multiple projects under one program, they can negotiate more favorable terms with insurers, potentially leading to lower overall premiums.
• Owners maintain direct control over policy terms and limits: The owner has the final say on policy details like coverage types, deductibles, and risk tolerance, allowing them to tailor the program to their needs and budget constraints.

Weaknesses:

• Owners bear the financial responsibility for premium costs, deductibles and potentially collateral: The owner is directly responsible for paying premiums and deductibles, and costs can quickly add up, particularly for large or intricate projects with high insurance costs.
• Less control over claims handling and risk mitigation strategies: While the owner sets the policy parameters, the contractor typically manages the claims process. This can limit the owner's influence over resolving claims and potentially affect the final settlement amounts. Additionally, the owner may not have visibility or control over the contractor's risk mitigation practices, potentially impacting the project's overall risk profile.
• Potential for delays due to owner involvement: Without support, owners involved in the procurement and design of their insurance program can lead to delays in the pre-construction phase.

Selecting the Right Program

Choosing between CCIP and OCIP is dependent on several factors specific to each project. Here's a breakdown of critical considerations to guide your decision:

Project Size and Complexity

• Large, multi-year projects: Owners may have a portfolio supportive of a Rolling program. Sophisticated Contractors may too have programs that are well designed and can also support large, multiyear projects.
• Smaller Projects: Both OCIP's and CCIP's can support smaller projects.

Contractor Experience and Risk Profile

• Experienced contractors with strong safety records: These contractors are well-positioned to benefit from CCIP.
• Less experienced contractors or those with claims history: OCIP might be a more beneficial for these scenarios, especially if the owner has the experience and resources to oversee insurance architecture, manage claims, support the program administration, and mitigate risks.

Risk Tolerance and Control Preferences

• Risk-averse owners who prefer direct control: Owners prioritizing control and transparency might favor an OCIP. They can tailor the program to their risk tolerance and ensure alignment with their overall risk management strategy.
• Owners comfortable with contractor management: For owners comfortable delegating risk management and claims handling to the contractor, a CCIP can be a viable option.

Budget Constraints

• Financial Considerations: Carefully evaluate the economic implications of each program. In a CCIP, the contractor pays the premiums and deductibles, potentially impacting their profit margin if claims arise. For OCIPs, the owner shoulders the financial burden, which can be significant for large projects. It's crucial to factor in these costs during project budgeting.

While CCIPs and OCIPs are popular choices, alternative risk transfer methods, such as project-specific insurance or captive insurance programs, may also be worth exploring depending on your project's unique needs. While CCIPs and OCIPs each have strengths and weaknesses, each project has distinct needs that may dictate its insurance needs. To make informed decisions that best safeguard your project's success, carefully consider factors including project size, contractor experience, risk tolerance, location of the project, type of construction, budget constraints, and alternative risk transfer options.

Don't Navigate the Complex World of Risk Management Alone

In the fast-paced world of construction, our dedicated construction experts can help you navigate the world of coverages and risk management so you can remain focused on keeping projects running safely and on time. We'll help you contain your exposures and deliver insurance architecture that safeguards your success.

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