Wrap-Up Insurance Program Considerations
On larger projects Owner/Developers, General Contractors and Homebuilders are continuing to use Wrap-Up Insurance programs for Coverage, Control and Cost Savings purposes to “control" their Total Cost of Risk (TCOR).
What is a Wrap-Up program? It is a Controlled/Consolidated Insurance program that is centrally procured and managed for a single project or a series of projects.
Wrap-Ups can be purchased by an Owner/Developer, Owner Controlled Insurance Program (OCIP) , or by a General Contractor or Homebuilder, Contractor Controlled Insurance Program (CCIP).
Coverage is a key consideration in a Wrap-Up as typically General Liability and Excess Liability coverages are broader in scope and provide higher limits of liability as opposed to each Contractor providing their own coverage. In addition, Wrap-Ups usually provide Completed Operations Liability coverage through the Statute of Repose for the state in which the project is located, often times up to 10 years depending on the jurisdiction.
Control is another factor as the Wrap-Up Sponsor wants to have a uniform Safety, Claims Management, and Risk Management program to ensure the Project will be successful. When a Liability Claim occurs, there is no “finger pointing” which reduces litigation and typically results in a shorter time frame for resolution.
Lastly, potential Cost Savings is the final factor in determining if a Wrap-Up is feasible. Based on economies of scale depending on the coverage provided and type of project, Wrap-Up Insurance Premiums can be .0025% to 1.5% of the project “Hard Costs”.
There are two types of Wrap-Ups: Traditional (Workers Compensation, General Liability & Excess Liability) which we generally see being used on a single project at $100MM and above. General Liability (GL & Excess Liability) are commonly used in Habitational type projects and can start at $10MM, but are more cost effective at $30MM and above. In addition, Rolling Wrap-Ups are used for a series of projects over a two to three year period by some Owner/Developers and GC’s and Homebuilders to achieve economies of scale.
Wrap-Up programs can be structured to include Pollution/ Environmental Liability coverage and Professional/Errors & Omissions Liability for the Design Professional team and Subcontractor Default Insurance (SDI) coverage.
As a Subcontractor being asked to participate in a Wrap-Up Insurance program, there are a number of key steps to take before signing the Contract and enrolling in the Program:
- Request a copy of the Wrap-Up Administration Manual, which will include a Certificate of Insurance (COI) of coverage provided, Enrollment form, Insurance Calculation form, and forward to your Insurance Agent or Broker for review. It is critical to understand what coverage is provided in the Wrap-Up for “on-site” construction activities. In addition, determine if you are responsible for the payment of WC & GL deductibles and if so, factor this into your bid. Conversely, understanding what coverage is required of you for “off-site” activities including Workers Compensation, General Liability, Auto Liability and Umbrella/Excess Liability is necessary to make sure you comply with all of the “non” Wrap-Up Insurance requirements and provide a COI.
- Next, provide your Agent or Broker the project details including Payroll for the project so they can assist you in calculating the Workers Compensation, General Liability and Umbrella/Excess Liability Insurance Costs/ Bid Credits that will be deducted from your Bid to make sure that it is accurate.
- If any portion of your Contract is being “subcontracted” to others on-site, be sure to provide them with a copy of the Wrap-Up Manual and supporting documents as they will need to “enroll” separately in the Wrap-Up program and also comply with all of the requirements.
- Maintain a copy of the Wrap-Up Certificate of Insurance (COI) so when your traditional WC & GL Payroll Audits are performed your Insurance Carrier excludes the Wrap-Up project from your Audit.
- Review your traditional General Liability and Umbrella/Excess Liability policies to confirm there aren’t any Wrap-Up endorsements that contain restrictions or exclusions that would prevent your polices from triggering in the event of an “off-site” Liability claim tied to the Wrap-Up project.
Contrary to some Industry perceptions, Wrap-Up Insurance programs can benefit Subcontractors who are participating in them from a Coverage, Claims/Risk Management and Cost of Risk, as long as they are understood and managed properly.
To conclude, you need to have expert Insurance & Risk Management advice in these matters. At AssuredPartners, we represent over 20,000 Construction Clients nationwide with 200 offices to serve you with an experienced team of Constructions Professionals to help you achieve your lowest possible Total Cost of Risk (TCOR).
Contact us at firstname.lastname@example.org
By Gary R. Semmer, CIC CWCA, Executive Vice President
Gary Semmer has considerable Insurance & Risk Management experience in Construction, Real Estate and Non-Profit industries. He began his career with the St. Paul Insurance Company (now Travelers) in Chicago as a Commercial Insurance Underwriter.
Gary is a graduate of the University of Minnesota Carlson School of Business with a Bachelors of Science Degree in Business with a concentration in Marketing & Finance. He has earned his Certified Insurance Counselor (CIC) designation and his Certified Work Comp Advisor (CWCA) designation.
Gary is involved with many Insurance and Risk Management organizations and has served on the Associated Risk Managers International Board of Directors and was recently President of the Associated Risk Managers (ARM) of Illinois. He served as President of the Independent Insurance Agents of Illinois (IIAI) was Chairman of the Federal Governmental Affairs Committee spending time in Springfield, IL and Washington, DC. Recently serving on the Board of Governors of the Society of Certified Insurance Counselors (CIC) for the National Alliance of Insurance and Education & Research in Austin, TX. Gary was presented the “Cartwright Award” which recognized his numerous years of service to IIAI as well as his meritorious service on behalf of Insurance Agents & Brokers in Illinois.