WHAT IS A Controlled Insurance Program (CIP)
A controlled insurance program (CIP) refers to a type of insurance policy that consolidates coverage for contractors and subcontractors into a single policy. Under this type of insurance program, one party establishes insurance on behalf of all or most of the parties performing work on a specific site or project, usually construction.
BREAKING DOWN Controlled Insurance Program (CIP)
Controlled insurance programs (CIPs) are most often utilized with construction projects, since these types of projects typically bring together a number of different types of professional groups.
The construction of a building carries a number of risks to all parties involved, including developers, building owners, contractors, and construction managers. Each of these parties typically maintains its own insurance policy to avoid having to pay for damage or injury claims out-of-pocket. In some cases, the individual companies associated with a project will each purchase their own insurance. However, this can create exclusion gaps in which risks are not effectively covered. By joining one single policy, all parties may be able to reduce their overall risk and the cost associated with coverage.
Controlled insurance programs 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 language.
Implications of Controlled Insurance Programs
Controlled insurance programs are most commonly used on single projects but other uses include maintenance on a large facility, or on an ongoing basis for multiple construction projects. Either the owner, contractor or a combination of participating parties can purchase controlled insurance programs.
Companies that hire a number of contractors or subcontractors to complete a project may use a controlled insurance program to reduce the bids that third parties submit for their work. Contractors typically include the cost of insuring their employees in bids that they submit. A company that offers an aggregate policy, such as a CIP, can use its buying power to negotiate a better rate than individual contractors may be able to. This means that contractors would not include the cost of insurance in their bids, which lowers the overall bids. This can be done through a buyback deductible methodology, which allows an insured party to pay a higher premium to reduce the deductible.
Using a controlled insurance program does create additional costs. For example, the construction company that may offer the CIP has to administer the policy, analyze more complicated bids, and negotiate with insurers.