What Is a Controlled Insurance Program (CIP)?
A Controlled Insurance Program (CIP) is a type of insurance product that allows coverage for contractors and subcontractors to be pooled together into a single policy. Under a CIP, one party purchases insurance on behalf of all or most of the parties performing work on a specific site or project. The lead insurer is then often reimbursed by the other insured parties.
- A Controlled Insurance Program (CIP) is a type of insurance coverage that lets a number of parties all working on a project band together under one policy.
- CIPs are popular in the construction industry, in which projects depend on a variety of professionals such as contractors, builders, and developers.
- The standard practice is for one party to buy the coverage on behalf of the group, and have the other parties pay the buyer back.
- CIPs can benefit smaller project participants because the larger size of the combined purchaser can result in better coverage or reduced premiums.
How CIPs Work
CIPs are a method of insurance that is especially common within the construction industry. After all, construction projects require a range of different parties and specializations, such as developers, landlords, contractors, and construction managers.
Typically, each of these parties would maintain their own insurance policies to avoid having to pay for damages or injury claims on an out-of-pocket basis. However, this can lead to exclusion gaps in which some risks are not effectively covered, or to some parties failing to purchase enough insurance to effectively mitigate even their covered risks. If those weaker parties are found responsible for damages, they may be unable to pay and could even be forced into bankruptcy.
To help ensure that all parties are adequately covered, the project leader—often a general contractor or design-build development firm—will sometimes purchase a CIP on behalf of all the project participants. By joining one single policy, all of the parties may be able to reduce both their overall risk and their cost of insurance, since the group will enjoy greater purchasing power than any of its individual members.
In this arrangement, the leader of the project would typically pay upfront for the insurance premiums of the policy, but would then be reimbursed by the different project members, either through a direct repayment or by reducing the payments that are owed to those members as part of the construction project.
CIPs bring together a variety of different coverages, including workers’ compensation, general liability, employers’ liability, and excess liability. Other types of coverage, such as environmental or professional liability, can be added to the policy on an ad-hoc basis, at the cost of additional insurance premiums.
Although CIPs are most commonly used on single projects, they can also be used to cover the ongoing maintenance of a large facility, or on an ongoing basis to cover a series of construction projects.
Example of a CIP
Michaela is the owner of a real estate development firm. Over the years, she has developed a network of trusted contractors who she relies on for specialized labor such as excavation, plumbing, and construction services. Although some of these contractors are relatively large businesses with their own standard insurance policies, others are sole proprietorships or small businesses that may have limited insurance coverage.
To help ensure that her projects are well insured, Michaela takes out a CIP that covers not only her own risks as a developer but also the unique risks associated with each of her contractors. Her partners then agree to reimburse Michaela’s firm for the added cost of this CIP by reimbursing her for their share of the CIP’s insurance coverage.
If these parties continue to work together on multiple projects, they might structure their CIP coverage so that it remains in place over several jobs. Alternatively, they can obtain a separate CIP for each job in order to maintain flexibility and work with different partners.