On a typical construction project, the general contractor, subcontractors, and the project owner need their own insurance policies to protect their work. But what happens if everyone doesn’t have the required coverage? Enter construction wrap-up insurance, a type of liability policy that rolls insurance, claims management, and loss control into one comprehensive program, so teams can worry less about costly coverage gaps.
In this guide, we’ll explain all the details you need to know, so you can decide if construction wrap-up insurance is right for you.
Key Takeaways
- Construction wrap-up insurance offers a convenient way to extend full coverage to all contractors and subcontractors over the course of an entire project.
- There are two types of wrap-up insurance: Owner controlled and contractor controlled.
- Because job site exposures change every day, the wrap-up administration team needs to carefully manage safety risks while implementing the insurance program.
What is Construction Wrap-Up Insurance?
Construction wrap-up insurance is a type of all-inclusive liability coverage that protects every contractor and subcontractor working on large construction projects over $10 million (or multiple smaller, related projects totaling that amount).
Construction wrap-up insurance is a popular risk management practice for many businesses because it eliminates the need for each contractor to carry their own separate policy.
Who is Wrap-Up Insurance For?
Wrap-up insurance programs can either be bought by the project owner under an Owner Controlled Insurance Program (OCIP), or by the general contractor under a Contractor controlled insurance program (CCIP). Whoever “sponsors” the wrap-up program is responsible for paying for the coverage and implementing it.
No matter who buys the policy, the ultimate purpose of wrap-up insurance is to cover every party involved in the project, for the full duration of the project.
What Does a Wrap-Up Insurance Policy Cover?
A wrap-up program can combine multiple different insurance coverages, including (but not necessarily limited to):
- General liability: General liability insurance covers construction companies against financial loss from third-party claims related to property damage, injury, or other issues caused by a contractor’s work.
- Excess liability: Excess liability/umbrella insurance is supplemental coverage that extends the limits of your policies.
Depending on the insurance provider, you might be able to add environmental liability and professional liability to your wrap-up program as well.
👉 Read our full guide to the types of construction insurance.
Benefits of Construction Wrap-Up Insurance
Construction wrap-up insurance can solve a lot of the problems traditional insurance policies create on projects. Here are some of the biggest advantages to buying a wrap-up policy:
Full control over project coverage: One of the biggest benefits of wrap-up insurance is the control it offers over project coverage. Under a traditional individual insurance model, you might have the coverage you need as a GC, but your subs may not, even if they’re contractually obligated to. Wrap-up insurance eliminates the need to micromanage everyone’s individual policies and instead gives you full control over the project’s entire coverage.
Centralized admin: Under a wrap-up policy, everyone on the policy essentially becomes an additional “named insured”. This makes it much easier to track claims, request certificates of insurance, and make sure everyone is following the policy terms.
More consistent safety standards: It’s much easier to manage safety under one policy that it is under multiple. With the policy terms clearly laid out, the wrap-up admin team can set and enforce clear risk management standards.
Potential cost savings: While wrap-up insurance is expensive, it’s often less expensive than purchasing multiple individual policies. And if you can get a policy written on a loss-sensitive basis, the premium you pay will be adjusted based on your claims history.
Advantages for Project Owners
For project owners in particular, construction wrap-up insurance can come with multiple advantages, including:
- Lower costs
- Fewer losses
- Better coverage and control over costs
- Greater ability to customize coverage
Advantages for General Contractors
On the GC side, wrap-up insurance can bring:
- Reduced costs
- Greater protection against liability claims
- Full control over the claims process
Potential Drawbacks of Wrap-Up Insurance
While construction wrap-up insurance can be a way to offer better coverage on a project, it’s not always a good fit. Before you begin the enrollment process, it’s important to consider some of the disadvantages you might encounter:
Complex management: Wrap-up insurance policies can be complicated, which means a lot of collaboration between the GC, subcontractors, the project owner, and the insurance company is necessary. Coordinating coverage, making sure everyone is aligned, and actually managing the program on a day-to-day basis can be challenging even for the most experienced project teams. For example, getting everyone enrolled correctly and verifying labor information to calculate the amounts credited out of contracts are common issues project teams face.
Coverage gaps: Wrap-up insurance covers a lot, but it can’t cover everything. For example, common exclusions include design flaws, pollution liability, or professional liability. Because of this, construction managers need to be aware of what gaps exist in coverage.
Lack of accessibility: Depending on the kind of project and where it’s located, wrap-up insurance might not be available for a reasonable price (or at all).
What Does the Enrollment Process Look Like?
Getting construction wrap-up insurance isn’t like purchasing an individual policy. Because this type of policy covers everyone on the project, pre-bid meetings with prospective GCs, subcontractors and the owner are a must. These meetings make it easier for project stakeholders to get aligned on what a wrap-up policy would look like for them and for the project as a whole.
Once it’s been determined that wrap-up insurance is a good fit for the project, underwriters from the insurance company will assess the project’s size, duration, and scope to determine the appropriate coverage. During the enrollment process, it’s crucial that the sponsor of the wrap-up policy works with their insurance broker to understand the insurance requirements, exclusions, and coverage limits.
After the policy is formally in place, the sponsor should notify all contractors and subcontractors working on the project. At this point, the wrap-up admin team will set up a process overseeing the policy and managing claims.
Best Practices for Implementing Construction Wrap-Up Insurance
A construction wrap-up policy isn’t a set-it-and-forget-it kind of thing. To get the most out of this type of coverage, the wrap-up team needs to set clear quality control and risk management procedures to limit claims. This team should also make a point to build relationships with contractors and educate them on the policy.
For contractors, it’s also important to track open wrap jobs. This way, you can correctly calculate your premiums in time for your own insurance audit.
Lastly, project teams should have a plan in place for coverage transition once project development ends. At this point, wrap-up insurance will need to transition to operations coverage, which will likely be on an individual policy basis.
Wrapping Up
Peace of mind is worth a lot on the construction site. When managed well, construction wrap-up insurance can help everyone sleep just a little better at night.
Still not sure what type of insurance is right for your construction business? Check out our comprehensive guide to construction insurance.