Who & What is Included & Excluded in an OCIP?
As stated in Part 2: What’s an OCIP & Why use an OCIP, OCIPs help project owners to better control the cost of insurance and risk financing on capital construction projects. An OCIP is basically a wrap-up under which a project owner provides various insurance coverages to contractors and subcontractors. OCIPs can potentially reduce a project’s cost by approximately 1-3%, compared to using the traditional, fragmented insurance programs that are usually provided by contractors on construction projects.
Who & What is Included in an OCIP?
An OCIP can be site-specific or it can be used for multiple jobsites. Most OCIPs are multi-year programs with a fixed duration. For large capital construction projects, the duration of an OCIP can be as short as two years, or as long as five, and even ten years for some large transportation infrastructure construction megaprojects.
The project owner’s project management team and project controls departments usually establish project durations. It is important as part of a project owner’s due diligence that they coordinate with their insurance broker to obtain an indication from the insurance and reinsurance markets to determine if these markets can support the specific duration of the project owner’s construction project to underwrite the OCIP insurance coverages.
The OCIP normally applies to all contractors and subcontractors performing work at the project jobsite. The project jobsite is defined to include the construction project site, as well as on-site fabrication shops and associated material storage and laydown yards.
The insurance coverages most commonly included in an OCIP can include workers’ compensation and employer’s liability, commercial general liability (CGL), and excess/umbrella liability. (In some states, e.g. Washington State, which is monopolist, workers’ compensation insurance is administered through the Washington State Department of Labor and Industries [L&I] for the state’s workers’ compensation system, and managed and regulated by a State Fund.)
In addition, (but not always), an OCIP can include builder’s risk, professional liability insurance for design professionals, and environmental liability insurance coverages. Several markets used to bundle the professional liability with environmental liability insurance to provide design errors & omissions and pollution coverage as a package policy. However, this is less common today.
Who & What is Excluded in an OCIP?
If the majority of a contractor’s work is performed away from the project site, that contractor may be excluded from an OCIP. The reason is simple. These contractors have limited construction jobsite exposure. Therefore, they have basically limited potential for incurring any construction jobsite injuries, and resulting insurance claims.
An OCIP could also exclude various contractors with a contract amount below a certain threshold. Depending on the total project construction costs, some project owners have established threshold values of between $25,000 to $50,000 in total construction value or total contract value (TCV) that have been used. This can sometimes to be a good rule of thumb if a project owner wishes to exclude contractors from participating in an OCIP. (This is totally at the project owner’s discretion. However, it may be more efficient for OCIP administration to establish a requirement that all contractors involved with the project are enrolled in the OCIP so that there is continuity with all contract terms.)
It is important to note that commercial auto liability insurance coverage is typically excluded from an OCIP. This is due to the difficulty of controlling or verifying losses. If included, this coverage could negatively impact any potential for OCIP cost savings.
Hope you enjoyed this post. I will look forward to your comments. I will share more Insights in future posts.
In OCIP 2.0 – Part 4, we will review the difference between an OCIP and a traditional insurance program provided by contractors on a construction project.
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Until next time…
David Grenier is the Managing Director and Principal Consultant at C-RISK, LLC.
C-Risk is a risk management consulting company that provides strategies and insights on wrap-up insurance programs to help project owners in the public and private sector who are involved with large capital construction projects.
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