Consolidated Insurance Plans Gaining Appeal
...accompany traditional multiple liability insurance policies.
For subcontractors, a leading benefit of consolidated insurance is that because everyone has the same coverage, limits and exclusions, they can’t lose their insurance in the middle of a project.
Consolidated insurance isn’t risk free, however. The primary risk is that coverage may not sufficiently cover future losses. Contractors need to exercise diligence in screening coverage afforded under a CIP, and carefully review provisions of any proposed CIP before bidding. If insufficient information is provided in the invitation to bid, subcontractors should qualify their bid.
Subcontractors need to be aware of “rolling wraps,’’ or consolidated insurance that covers more than one project. Under a rolling wrap there is a risk that the insurance policycan be depleted by losses on other projects.
Other considerations for those not familiar with consolidated insurance programs:
•Deductibles: Practically all CIPs involve large deductibles and retentions, with the policyholder typically responsible for the first $250,000 or more of claims. While this allows the insured to directly benefit from the CIP’s performance, it can deter those more comfortable with guaranteed cost programs.
•Collateral: The policyholder must post collateral or security equal to the estimated losses within the deductible or retention, which is a potential strain on finances.
•Greater Expertise: An insured and its insurance agent or broker must have a detailed understanding of insurance and risk management to even consider a CIP, let alone tailor one to the specific needs of a project.
•Additional Costs: With their dedicated safety resources, consolidated insurance plans shift some of the costs otherwise assumed by subcontractors to the general contractor, developer or owner.
Case studies demonstrate that CIPs produce the greatest financial rewards when safety is a priority. On such projects, all parties communicate regularly. From the beginning a culture of safety is created, with front-line workers helping establish best practices. The most successful CIP projects manage claims aggressively. The final cost of an accident depends on an insurer quickly bringing the best resources to bear on a claim. All jobsite crew must know how to report and manage a claim.
Consolidated insurance programs are not designed for small projects or even all mid-size and large projects. But with federal stimulus money creating more high-dollar infrastructure projects, CIPs offer a way for some contractors to get off the sidelines and into the game. The programs offer a way for construction team members to reduce accidents, lower overall costs and streamline functions and that in turn is moving insurance carriers to fund projects they previously would have rejected.
