Wrap-Up FAQs
- What is a wrap-up?
- What are the pros?
- What is the downside?
- What kinds of projects have wrap-up insurance?
- What are the different types of wrap-ups?
What is a wrap-up?
A wrap-up is the consolidation of workers' compensation, excess/umbrella and general liability insurance coverage for all or most of the entities working on a project. Construction companies submitting bids for the jobs are asked to deduct these insurance costs from their bids. The wrap-up administrator then purchases coverage for the job. Once engaged in the project, the contractor's cost of insurance is deducted from the payments it receives as the project goes forward.
What are the pros?
Wrap-ups are good for the project sponsor (its owner in an OCIP or the General Contractor, if it is a CCIP) because it reduces the total insurance cost. There is a gap between what the sponsor pays for insurance and what all the contractors and subcontractors would pay for traditional policies on their own. For example, if the total cost for contractors and subs were $10 million, the wrap-up administrator could negotiate a set of policies for $2 million by offering to pay any claims that occur. If there are no claims, the project sponsor keeps the $8 million difference.
Wrap-up administrators say the programs are good for contractors because they often provide more coverage than a contractor could obtain by itself. Also, there is less subcontractor litigation because all the companies are covered by the same policy.
What is the downside?
Wrap-ups subject contractors to administrative burdens and hidden costs that can exceed any profit they have in the job. Complicated and non-uniform insurance deduction worksheets often cause contractors to overstate their insurance credits. Safety fines and penalties can start at $500 and go up to $2,500 per violation, and sometimes the contractors do not know about these until they have won the job and receive the wrap-up documents. There can be coverage gaps, leaving the contractor exposed after a job is finished. Moving payroll into a wrap-up may affect traditional workers' compensation policies, causing the premiums to go up.
What kinds of projects have wrap-up insurance?
Wrap-ups are becoming more popular and frequently occur on government-funded projects like highways, bridges, schools, airports, prisons and military bases. Large mixed-use (hotel, office building, residential) complexes, entertainment venues and sports stadiums frequently use wrap-ups.
What are the different types of wrap-ups?
- Controlled Insurance Program (CIP)
- Owner-paid wrap-up insurance = Owner Controlled Insurance Program (OCIP).
- Contractor-paid wrap-up = Contractor Controlled Insurance Program (CCIP).
- Rolling wrap-ups frequently used for projects on multiple sites
