Guiding you through risks and potential underwriting perils, Lance J. Ewing of AIG provides his market-spanning insights. A recipient of the Risk Manager of the Year for Business Insurance and Risk Innovator of the Year awards, Ewing is an internationally recognized authority on insurance, risk management, crisis management and risk financing, among many other insurance and risk-related subjects. At AIG, he serves as the leader for Hospitality and Leisure, as well as the Real Estate Industry Practice Groups.

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NEW YORK CITY—Real estate construction is booming. With the economy moving out of neutral and lending institutions having lower interest rates, developers and owners are in a building or expanding state of mind. All of these major projects or expansions will require insurance. There are a few options other than traditional insurance for major real estate construction.

Owner Controlled Insurance Program (OCIP), Contractor Controlled Insurance Program (CCIP) and Developer Controlled Insurance Program (DCIP) are three distinct construction insurance products. These cover all or at times select insurance for a specific single project and may be known as “wraps” or a “wrap program.” In some cases these insurance coverages can be for multiple or even ongoing projects known as “rolling wraps.” Residential projects are becoming more and more difficult to place in a wrap because of construction defect issues.

Projects of significant size, scope and cost tend to be the best candidates for a wrap. Wraps as a concept tend to make the most sense on projects costing between $75M and 100M, with $15M to 20M in payroll, but those are mere guides. But what are the advantages of “wrap insurance program”?

Risk Administration. Wraps have at its center a centralized risk management program including a sole insurance program, claims handling process, loss prevention and even drug testing that is controlled by the owner, contractor or developer. Owners will normally provide a dedicated team for the wrap. Disparities between contractors are all resolved within the confines of the policy.

Coverage. OCIPs between the owner and the insurance companies tend to be manuscripted and many times provide a broader coverage. It also outlines the claims management process and these programs can possibly reduce workers compensation costs by directing injured workers to preferred provider networks, establishing a return to work program or light duty/modified duty program.

Price tag. Premium cost savings in a wrap is completed by premium credits that are based on size for the purchasing of insurance by the owner, contractor or developer. For the owner it is the elimination of a general contractors’ mark-ups or overhead and profit on insurance premiums that are routinely charged back to the owner. These are costs, kept within the owner’s capability to undertake larger deductibles and workers’ compensation dividends brought about from a positive loss experience. The same would apply for a contractor wrap, based on the subcontractor’s mark-ups or overhead and profit on insurance premiums charged to the contractor.

Policy Limits. Many smaller contractors or subcontractors on a project may have reduced or smaller limits available. Their traditional insurance policy for general liability could be insufficient, if a large claim settlement is awarded. Most OCIPs and wraps allows the owner, contractor or developer to provide greater insurance coverage.

These are just a few advantages of a wrap insurance program. If you are in the market, please consultant with your insurance broker.