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April 30, 2019
Owner Controlled Insurance Programs (OCIPs) have been utilized by owners and developers for several decades throughout the United States. Historically they were only used for very large projects (values in excess of $100 million), but within the past several years they have now been employed on commercial projects as small as $25 million. While there are several benefits to utilizing an OCIP, this article will focus on some of the issues and gaps that contractors need to be acutely aware of prior to enrolling in an OCIP.
Why would an owner want to have their project insured by an OCIP in the first place? While reasons such as continuity of coverage, ability to have smaller contractors participate, and better claims resolution often are cited, the real motivation, in this author’s opinion, is to save money!
Various insurance carriers have jumped in the OCIP marketplace and some insurance brokers are pushing very hard with their owner/developer clients by suggesting the possibility of pro-forma savings on their insurance costs by using an OCIP. The problem with this logic, however, is that all OCIPs are not created equal and many have gaps in coverage, put more deductible responsibility on the contractors, and are hastily put together extremely late in the pre-construction process. In addition, the bid deduct credits that owner’s brokers are suggesting contractors will recoup are not reasonable (often over 50% of the insurance costs that contractors charge) and there are additional costs the owner bears with an OCIP, such as hiring an OCIP administrator.
Some of the major disadvantages of an OCIP from a contractor’s point of view include potential gaps in coverage, increased deductible responsibility to the contractor, unrealistic bid deduct expectations, potential OCIP administrator errors, and poorly communicated coverage placement and requirements via the OCIP manual. The following are some strategies we recommend to overcome these challenges:
OCIPs are part of the construction world and owner/developers will continue to push for utilizing them. Contractors can have positive and successful outcomes, but it is important to have a competent broker that understands the nuances of OCIPs carefully review your program to ensure the coverage is in place in event of a claim, and your interests are adequately represented.
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.