Consolidated Insurance Plans Gaining Appeal
If you’re still pining for another 1990s-style construction boom, you clearly are a contractor and not an insurer. The insurance industry might rather forget that decade. The 1990s may have brought on skyrocketing construction volume, but they produced an unprecedented level of construction defect litigation. That was the era when premiums began to go up -- and carriers began to get out.
Unfortunately, many small and mid-size contractors still struggle to find ways to insure projects that have a higher-than-normal liability. In the past couple of years, however, a growing number of them have found relief through the use of a consolidated insurance program, or CIP. Also called wrap-up insurance, these plans historically have been used only on large, high-liability projects. Savings produced by such plans have been in the 1 to 2-% range, a major reason that a growing number of underwriters are willing to extend CIPs to mid-size projects as well. The required threshold usually is about $125 million in total construction costs.
Essentially a CIP is a type of policy in which all participants involved in a building project are covered by a single policy. Normally the policy sponsor for the project is the general contractor. The policy usually names all project entities for general liability, and sometimes identifies workers’ compensation risks. The policy may include coverage for claims that may be filed over a number of years.
Consolidated insurance is gaining popularity because general contractors and owners are finding it can provide better coverage than that obtained by paying contractors and subcontractors to provide coverage under separate commercial general liability policies. A CIP can be used for multiple jobsites, and many are multi-year programs with a fixed duration. For large projects, the duration usually is two to five years.
Although plans differ, most consolidated insurance programs include workers’ compensation, employers’ liability, commercial general liability and excess/umbrella liability. Sometimes the CIP includes builder’s risk, professional liability for design professionals, and environmental liability coverage.
Commercial auto liability coverage normally is excluded due to the difficulty of controlling and verifying losses.
Also, certain contractors might be excluded if they perform most of their work away from the jobsite. That defeats the purpose of consolidate insurance, which stakes its success on the ability of contractors and subcontractors to promote safety at the primary jobsite. In fact, safety drives a CIP: It is where cost savings are created. Under a CIP plan, construction leaders typically create a central safety program and then monitor performance, rewarding those who follow safety policies and correcting those who do not. Because of this, CIPs usually have fewer workers’ comp and general liability claims.
Under a CIP, claims management is made considerably simpler. Each CIP provides a single claims management process. It details how a claim will be reported and managed, including how each subcontractor will return injured workers to the job. Consequently, a CIP usually has lower claims costs.
Consolidated insurance programs create savings by streamlining the administrative function. The additional cost of a program administrator usually is less than the cost of monitoring multiple insurance certificates, additional insured endorsements, renewals and premium audits that...