How to Realize Cost Savings on Wrap-Up Insurance

This post is part of a series sponsored by TSIB.

It’s important to understand how insurance cost savings work with a Managed Insurance Program (CIP), also known as a wrap-up, and who retains the risk and benefit. There are several types of CIPs, depending on what coverages are included and who purchases them (owners vs contractors). However, the potential savings are differentiated by one big factor: does the wrap-up in question provide two lines of coverage or one line of coverage?

Summary of two lines

A two-line wrap-up typically includes Workers’ Compensation (WC) and General Liability (GL). This type saves you money on insurance costs in two ways:

1. Direct Cost of Wrap-Up Insurance vs. Traditional Insurance. Traditional insurance is defined as the cost to the contractor to bring their own insurance to the project. Wrap-up insurance is typically less expensive than traditional insurance.
2. If losses are effectively managed, the lost funds required for a large write-off program can be recovered and added back to the project’s bottom line as avoided costs.

Loss-sensitive programs are a commonly used risk financing vehicle in the market, as wrap-up deductibles are typically $250,000 or more. These plans include a fixed premium and a deductible paid for each loss. All loss-sensitive options have an aggregate loss amount, allowing you to budget for maximum costs. Wrap-up Sponsor You pay a fixed fee and choose to advance or bond the cost of losses up to your program deductible.

The program OCIP (Owner-Managed Insurance Program) The project owner and his/her broker are ultimately responsible for the design and administration of the program, which includes:

• Career Choices
• limit
• Deductions
• Price Negotiation
• terms of service
• Contractor Registration
• Complaint Management
• Payment of insurance premiums
• Guarantee obligation

The owner is Cost reduction or exceeded at the end of the program. With an OCIP, project owners realize the benefits of reduced insurance premium costs and avoidance of potential loss financing costs if losses are properly managed.

When placed as CCIP (Contractor Managed Insurance Programs), the general contractor retains the financial risk and reward. The general contractor and project owner both play a role in safety, loss mitigation, and claims management, and can share in the financial results of the loss fund component.

Single Line Wrap-up – Typically GL only

GL-only coverage is the most common single-line wrap-up and typically: Unique risks and sponsorship We are not interested in the financial risk/reward outcomes of loss-sensitive programs because GL-only wrap-ups are typically written by excess and surplus lines insurers (non-admitted) and have very low deductibles (often around $50,000).

A notable exception is wrap-ups in New York State (NY), where GL deductibles rarely fall below $3 million per case. NY wrap-ups are not viable for projects with less than $500 million in construction volume due to very high minimum premiums compared to other states, as well as high collateral requirements.

For wrap-ups outside of New York, the avoidance of loss funding costs found in two-line wrap-ups does not apply to single-line wrap-ups because there is no loss funding or collateral obligation associated with the small allowance program.

Therefore, the only potential savings with a single-line wrap-up is a direct insurance cost comparison between the single-line wrap-up and the cost of traditional GL insurance that the subcontractor brings to the project.As with a two-line wrap-up, the sponsor of the insurance program (owner or general contractor) is the entity that benefits from any cost savings.

As a highly specialized insurance services company with a focus on the construction industry and Wrap-Up placements, TSIB has the skills, manpower, market reputation and experience to evaluate all Wrap-Up options and ultimately implement the insurance solution that best suits the needs of our clients and project stakeholders. Reaching out For more information, please visit the TSIB.

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