Pros and Cons of Controlled Insurance Policies
by Leonard Toenjes

Q: I have been approached for a contractor-controlled insurance policy for my next project. I have never used one of these but want to learn more.
What are the advantages and pitfalls of these contracts?

A: Owner-controlled insurance policies (OCIPs) and contractor-controlled insurance policies (CCIPs) have gained some popularity over the past several years.

Both owners and contractors who hold these policies see several advantages.

From the perspective of the entity controlling the OCIP or CCIP, there is 100 percent assurance related to the types and quantities of insurance coverage for the protection of the overall project. The broker and insurance company work closely with the controlling entity to fully determine the risks involved in the project and work together to provide a comprehensive range of coverage for the project. This enhances the comfort level of the owner.

Another advantage from the controller of the OCIP or CCIP is the reduction in administrative burden of verifying the insurance coverage for each participant in the job. Finger pointing between individual contractors, subcontractors and suppliers and their individual insurance providers is minimized with a blanket insurance program.

OCIPs and CCIPs also allow the controlling entity to purchase insurance in "bulk," thereby theoretically reducing the overall insurance costs on the project. Controlling entities on these projects also have greater control related to safety issues on the jobsite.

Policy Drawbacks

Pitfalls for an OCIP or CCIP are related to overlapping insurance costs.

Due to the nature of contracting, it is often difficult for a contractor, subcontractor or supplier to carve out coverage from their total insurance coverage for one or two OCIP or CCIP jobs. Based on the types of annual volume estimates that many contractors are required to make for various types of insurance, such as liability insurance, it is extremely difficult to determine in advance the amount of OCIP or CCIP volume that may occur.

Often, the information is unavailable or the paperwork and time needed to determine the amounts of exclusions from company insurance plans for OCIP or CCIP jobs is not worth the trouble or savings, so subcontractors and suppliers will carry overlapping coverage.

When this occurs, many of the cost savings that should result in theory from an OCIP or CCIP do not materialize.

Since you have been approached to participate in a project of this type, work with the broker who is currently providing your insurance coverage to carefully review the terms of the OCIP or CCIP. Be sure to check the coverage limits, deductibles and any exclusions or limitations.

Work with your broker to determine if there is any potential to reduce some of your insurance coverage and costs in areas that may be assumed by the CCIP.

If so, there are savings that you can take advantage of in your bid. If not, you are faced with the issue of carrying duplicate coverage or trying to work with the contractor to determine if there are any other options open to you on this particular project.


Do you have questions on construction human resources or safety?
E-mail them to Leonard Toenjes at ltoenjes@agcstl.org or
craig_barner@mcgraw-hill.com.

If Len picks your question, he will answer it in a future issue of Midwest Construction.)

Due to the nature of the type of up-front capital requirements, timely payments can make or break a company.