Implementing an Owner-Controlled Insurance Programs
By David L. Grenier
C-Risk, Inc.
February, 2001
This article is part of a series discussing Owner-Controlled Insurance Programs (OCIPs).
Successfully Implementing an OCIP
Owners who decide to go with an OCIP should remember these words of wisdom: OCIP administration is the critical component of a successful OCIP implementation.
Once an owner commits to an OCIP approach, there are several things that will influence its ultimate success, which include:
-
Owner-Contractor Partnership. At the onset of a construction project, it is essential that the GC understand and accept responsibility for his or her role in the OCIP program management. The GC typically has authority over, and responsibility for, the two most important elements of an OCIP’s financial success: 1) negotiating insurance credits with subcontractors, as part of the procurement process, and 2) project site safety.
-
Program Design. To maximize owner and GC support, OCIP procedures must be compatible with the owner’s and GC’s existing practices. Therefore, the person providing design and implementation consulting should consider mapping the owner’s and GC’s procurement, accounting, safety, and risk management procedures in order to minimize any changes imposed by OCIP implementation.
-
Information Management. If the program is to be a success, every contractor and subcontractor must understand and comply with all OCIP procedures. There are three steps an owner should take to accomplish this:
-
Bid instructions and expectations must be clearly described and communicated to all contractors in order to maximize the insurance deduct process.
-
Timely and accurate claims reporting is necessary to ensure that all injured employees receive immediate medical treatment and are assigned to back-towork programs.
-
Timely and accurate payroll reporting is necessary to measure program financial performance and to ensure compliance with insurance statutory, regulatory, and audit requirements.
-
- Documentation and Procedures. Understanding the requirements and expectations of an OCIP can be achieved by using these tools:
- A bid deduct form that is easy-to-read and understand
- A user-friendly procedures manual
- A comprehensive safety and loss control manual
- Clear and concise claims reporting forms and procedures
- Pre-bid and pre-mobilization meetings and associated documentation packages
- Safety Program. To minimize OCIP losses, it is essential that the GC create and continually reinforce a proactive safety culture. A good safety program has many of the following characteristics:
- A formal, structured program with a written safety manual
- Contractor and subcontractor safety prequalification procedures
- Safety training, monitoring, and periodic “toolbox” talks
- Independent, scheduled and unscheduled safety audits
- A full-time safety representative and onsite safety staffing
- Pre-mobilization safety orientation and certification process
- Drug and alcohol testing programs
- Program Monitoring. An OCIP monitoring program provides for the timely measurement and recording of trends and events so that financial results, the effectiveness of administrative procedures, and individual contractor safety performance can be evaluated.
- These reports should be produced monthly, be easy to read and interpret, and be written in terms that are consistent with the owner’s and GC’s procedures and expectations.
Here are some key implementation and administrative tasks:
-
Prepare a manual providing contractors and subcontractors with information about implementation procedures, insurance coverages and limits, safety programs, claims reporting, record keeping, and other OCIP requirements.
-
Prepare insurance clauses for bid documents and contract administration.
-
Provide contractor and subcontractor orientation notices and meetings.
-
Obtain evidence of any insurance not provided by the OCIP that is purchased for contractors and subcontractors (such as commercial auto liability and general liability DIC coverage for accidents that occur away from the project site).
-
Enroll all contractors and subcontractors in the OCIP.
-
Prepare claims administration procedures for insurers and/or claims administrators.
-
Review contractor and subcontractor bid deducts for all OCIP-provided coverages.
-
Review initial bids and change orders to ensure proper insurance deductions.
-
Collect payroll and other required reports from contractors and subcontractors. OCIP administration is the critical component of a successful OCIP implementation.
-
Prepare cost reports that show both the cost of the OCIP and contractor/subcontractor insurance bid deductions. (This gives the owner the ability to monitor OCIP savings.)
-
Provide periodic cost reports to the owner or other owner-designated recipients.
-
Ensure that statutory workers’ comp reports are filed with the appropriate rating bureaus.
-
Ensure that contractor and OCIP insurers accurately complete payroll audits.
-
Following a contractor’s or subcontractor’s completion of work, review performance and quality, then calculate final insurance deductions for each contract prior to final payment.
-
Note: It is highly recommended that you review the capabilities of the RMIS used by administrators to track contractor and subcontractor bid deductions and fixed OCIP costs. Some of these systems do not track losses and variable costs. If an OCIP premium is loss-sensitive, the total OCIP costs may require a manual calculation. Carefully consider this when selecting your agent, broker, and/or OCIP administrator.
The Importance of Audits
OCIPs are usually implemented on projects to improve safety, reduce losses, and achieve specific financial results. To accomplish all of these goals, the OCIP administrator needs to complete the specified implementation and administrative tasks. Periodic audits can help ensure that the quality of OCIP administration is maintained and that potential OCIP savings are being achieved.
Audits should be done annually, preferably at the same time each year prior to the anniversary date of the OCIP, and also at the completion of the project. The practices and procedures related to the following should be reviewed:
-
Binding insurance coverage, issuing certificates of insurance, and issuing insurance policies to contractors and subcontractors.
-
Contractor and subcontractor enrollment.
-
Collection of contractor and subcontractor exposure data (such as EMRs) and other information required to calculate bid and change-order deductions for OCIP-provided insurance coverages.
-
Verification of completeness and accuracy of all contractor- and subcontractor-required OCIP forms and documentation; verification of proper filing and maintenance of these documents by the OCIP administrator.
-
Workers’ comp and GL claims reporting; the quality of claims handling and administrative services provided to enrolled contractors and subcontractors.
-
Compliance with all state and federal laws; the policies related to safety and loss control, accident prevention, and drug and alcohol abuse testing.
-
Quality of status reports, delineating all OCIP costs incurred and credits obtained from contractor/subcontractor bids and change orders.
-
Verification of insurance bills and OCIP premium adjustments.
To be effective, these audits require interviews with representatives of the owner, GC, contractors and subcontractors, agent or broker, OCIP administrator, and the insurer(s).
Next: Frequently Asked Questions About OCIPs
About the Author: David L. Grenieris President of C-Risk, Inc., a national risk management consulting firm providing risk management strategies and solutions to construction-industry clients. He specializes in construction, contract management, and wrap-up insurance programs.
Copyright © 2001-2006 David Grenier. All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder, except as follows: You may link this article to your website, either directly or through an ExpertLaw Library index page, provided your link does not depict this article, its author, or expertlaw.com in a negative manner.