In April 2003, the Texas Comptroller of Public Accounts recommended that "State law should be amended to create a Rolling-Owner Controlled Insurance Program (ROCIP) to reduce the insurance costs of Texas' public construction projects."l The plan supported by the comptroller would create a "statewide OCIP" organized to benefit "state agencies, counties, cities, school districts and others" by saving them millions of dollars on highway and other types of construction projects. When you consider that the National Governors Association estimated Texas' budget shortfall at almost $1.8 billion for fiscal year 2003, it's not hard to see the public appeal of the comptroller's proposal . 2 The comptroller estimates Texas' potential savings just on highway projects to be approximately $6 million annually. Is it reasonable for owners to expect significant savings on wrap-ups, and what is the financial impact of wrapups on subcontractors?
The Texas comptroller's office's idea i s not new. Like many other state governments, Texas hopes to find savings by "wrapping up" much of the i nsurance premium for workers' compensation, commercial general l iability and builder's risk coverage on state and locally funded projects, paying less than the costs of premium charged by prime contractors and subcontractors when they purchase their own insurance.
As evidence of potential savings, the comptroller's office cited a well known U.S. General Accounting Office (GAO) report on "Transportation Infrastructure: Advantages and Disadvantages of Wrap-Up Insurance for Large Construction Projects," published in June 1999. That report stated:
Before participating in construction projects involving wrap-up insurance programs you need to ask a number of questions as to what you are committing your assets to and what the real outcome may be for your business in the future. How these wrap-up’s are being written, by whom and for what purpose, varies greatly from job-to-job.
The idea of making up different policies as you go depending upon the needs and desires of each different owner/GC group ought to scare the heck out of any subcontractor. Each wrap-up you go out on is in a number of ways going to be different from the policies you currently purchase and rely upon for protection of your assets. The extent and severity of those differences are up to you to figure out. It is really a “buyer beware” scenario in which the buyer (i.e., the subcontractor) is issued a blindfold.
Here are just a few of the questions you should be considering: