If the insurance policies necessary for the typical construction project were scattered over the site, they’d probably come close to covering every square foot. Owners, general contractors, subcontractors, architects and others involved in the project all want to protect themselves from risk.

All of these policies may provide individual parties with coverage they want, but they can prolong claim resolution in extended infighting and finger pointing. In addition, multiple policies add to the cost of the project.

In response to these complications, more and more owners have embraced a different option in recent years: owner-controlled insurance programs (OCIPs). Because OCIPs allow owners to buy master coverage for all project contractors, these policies can save 1% to 1.5% of total project costs.

Expanded coverage
OCIPs are nothing new; they’ve been around since the 1950s. But they’ve become almost common now, not only because volume buying gives owners discount purchasing power, but also because OCIPs sometimes provide coverage that can otherwise be cost-prohibitive or unavailable to individual contractors.

OCIPs can cover difficult-to-insure losses associated with mold, pollution, and exterior insulation and finish systems. But do they benefit contractors along with the owners? That depends, experts say.

On the plus side, OCIPs sometimes provide coverage not included in individual contractors’ policies. Certainly this blanket coverage is more convenient for the contractor and, with its single-source responsibility, a properly administered OCIP can speed claim resolution.

In addition, OCIPs may open the door for projects that might otherwise be blocked by problems obtaining insurance coverage, such as multifamily residential buildings. But OCIPs aren’t the answer for every project. Contractors should learn as much as possible about their provisions before bidding on projects.

Possible pitfalls
One of the biggest pitfalls for contractors is completed-operations coverage. Though state laws vary in time limits for claims after construction is complete, most of these claims come more than five years after occupancy.

If the OCIP limits coverage to five years after completion, you could find yourself uninsured. You can face this exposure even if your own liability policies would ordinarily cover you for 10 years after completion, because many contractor insurance policies exclude work performed under an OCIP.

Before bidding on an OCIP project, discuss your exposure with your insurance advisor. Your bids should reflect a full understanding of all risks.

Of course, you need a complete grasp of your own insurance coverage before you can accurately assess risk. In some cases, you might discover the OCIP provides better coverage than your policy. In others, you may need to adjust your pricing to reflect uncertainties that come with the OCIP.

Cost worksheets
Usually, contractors bidding on OCIP projects must submit a cost calculation worksheet showing insurance costs without OCIP coverage. The owner then deducts that expense from the winning proposal. Be sure the deduction is not greater than the true cost of insurance.

In addition, OCIP contracts typically require contractors to perform administrative duties and submit information periodically, and you aren’t likely to receive reimbursement for the extra costs that come with those tasks. OCIPs also eliminate contractors’ markups on insurance costs, cutting off the possibility for recovering extra administrative overhead expenses.

Some benefits
In sum, OCIPs probably offer more real benefits to owners and developers than to contractors. But with care and expert advice, you can participate with confidence in projects covered by these policies.