What Is a Controlled Insurance Program (CIP)?

The term controlled insurance program (CIP) refers to an insurance product that provides coverage on a construction project. CIPs are designed to pools coverage for contractors and subcontractors together into a single policy. One party purchases a single insurance policy on behalf of all or most of the parties working on a specific site or project. The lead party is generally reimbursed by the other insured parties. These simplified policies help contractors reduce the costs associated with construction insurance. CIPs may also be used to cover other instances such as maintenance of large facilities.

Key Takeaways

  • A controlled insurance program is a type of insurance coverage that lets multiple parties working on a single 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.
  • One party typically buys the coverage on behalf of the group, with the other parties paying back the buyer.
  • CIPs help reduce risk and provide cost savings to every party involved in the project.
  • Contractor-controlled programs require the lead contractor to assume the policy while owner-controlled programs involve property or project owners to take out the insurance.

How Controlled Insurance Programs (CIPs) Work

Controlled insurance programs represent a type of insurance that is commonly used within the construction industry. After all, construction projects require a range of different parties who help move a project from start to finish and specializations, such as developers, contractors, and construction managers.

Each of these parties typically maintains their own insurance policies to avoid paying for damages or injury claims on an out-of-pocket basis. But 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 these weaker parties are deemed responsible for damages, they may be unable to pay. If this happens, they may be forced into bankruptcy.

To help ensure that all parties are adequately covered, the property owner or project leader—often a general contractor or a development firm—may purchase a CIP on behalf of all the project participants. Individual parties involved in the program may be able to reduce both their overall risk and their cost of insurance by coming together into a single policy. That's because the group enjoys greater purchasing power than any of the members do individually.

The leader of the project in this arrangement pays the policy's insurance premiums upfront and is reimbursed by the remaining project members, either through a direct repayment or by reducing the payments that are owed to those members as part of the construction project.

Controlled insurance programs may not provide coverage for construction vehicles and/or commercial property, such as tools and machinery.

Special Considerations

CIPs bring a variety of different coverages together. They include 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. Of course, additional riders come at the cost of additional insurance premiums.

Although CIPs are most commonly used on single construction projects, they can also be helpful for other uses. For instance, companies may take out these policies to protect themselves in the ongoing maintenance of a large facility or on an ongoing basis to cover a series of construction projects.

Types of Controlled Insurance Programs (CIPs)

CIPs fall into two different categories, including contractor-controlled insurance programs (CCIPs) and owner-controlled insurance programs (OCIPs).

CCIPs, which are also called wrap-up insurance policies, provide parties involved in a construction project with a form of risk management. With this kind of policy, the lead contractor is the one who seeks and takes out the single policy to cover the project, and it's their name that shows up on the policy. All of the other parties involved coordinate with the general contractor for reimbursement or to file claims.

Owner-controlled insurance programs are an alternative to CCIPs. Rather than the contractor taking out the policy, insurance is assumed by the project or property owner. Although commonly used in large projects, they are now popular choices for residential construction.

Example of a Controlled Insurance Program (CIP)

Here's a hypothetical example to show how CIPs work. Let's say Michaela owns 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 with 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 may 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.