An owner controlled insurance program is an insurance policy held by a property owner during the construction or renovation of a property, which is typically designed to cover virtually all liability and loss arising from the construction project. Although an OCIP may be set up in a variety of ways, a policy package usually contains, at a minimum, Commercial General Liability, excess liability insurance, workers' compensation and employers' liability. Depending on the project, there may be endorsements providing additional coverage such as Contractors Pollution Liability, Builders Risk Insurance, terrorism insurance and umbrella insurance. OCIPs are also frequently referred to as "wrap-up insurance" or "wrap policies" in the insurance industry. The traditional method for insuring construction consisted of each general contractor and subcontractor obtaining their own insurance policies from any provider of their choosing. In turn, they would build their policy premiums into their cost structure, which then became part of their bids. This meant that by accepting a GC's successful bid, the property owner was indirectly paying for administrative overhead at dozens of separate insurance brokers and insurance companies. In OCIP, all construction, materials, hazard, workers' compensation, environmental, terrorism, and other building-related insurance is purchased by the property owner as part of a single policy from a single insurer. Thus, property owners benefit from OCIP in that all insurance costs are collected into a single policy premium, rather than embedded inside the bids of dozens of contractors and subcontractors, and they have direct control over administrative costs by dealing with a single broker and insurer. A large property owner that always has many construction projects in progress at any particular moment—like a real estate investment trust, an urban school district, or a state university system—may attempt to realize additional savings by obtaining a single OCIP to cover multiple projects. A Contractor Controlled Insurance Program is similar to an OCIP except that the general contractor or construction manager sponsors the insurance program. There have also been hybrid programs combining features of an OCIP and CCIP on a loss-sensitive basis; that is, the property owner and GC share in the expected savings, but they also agree to share any additional costs if losses are higher than expected. A Developer Controlled Insurance Program is also similar to an OCIP but might not include WC; instead, a DCIP provides CGL, umbrella and excess mainly for protection against construction defect claims.
OCIP advantages to owners over traditional insuring methods
An OCIP may provide a number of advantages to a construction project owner, including:
Lower costs to the property owner as bulk purchase of insurance lowers total cost
Direct input into policy design and structure as opposed to relying on contractors' terms and conditions which may result in coverage gaps or insufficient amount of coverage
OCIP disadvantages to owners over traditional insuring methods
Possible disadvantages of an OCIP include,
Increased administrator burden for broker and underwriter
Increased accounting effort required to isolate contractor and subcontractor costs and insurance burden
Potential for contractors to claim for non-project injuries not actually covered under OCIP
Contractors may have less incentive to control losses if they aren't buying their own insurance
Less total coverage available to compensate owner when project manifests multiple defects with multiple independent causes, for which each responsible subcontractor previously would have brought own carrier, policy, and coverage limits to settlement table
In some OCIPs, defense costs erode policy limits, which is not true of conventional CGL policies
OCIP advantages to contractors over traditional insuring methods
As compared to traditional insurance, an OCIP may offer benefits that include:
Potential greater insurance limits and coverage depth and breadth that contractor could not otherwise obtain
Potential for contractor to work on projects that contractor could not otherwise obtain
OCIP disadvantages to contractors over traditional insuring methods
Possible disadvantages to contractors that result from an owner controlled insurance program include:
Potential gaps in insurance coverage
Potential losses in already-paid insurance premiums
