The majority of wrap-up insurance programs have large deductibles for workers’ compensation and general liability claims, so controlling losses is key to obtaining maximum results, aka Saving Money.   Most losses are preventable, so understanding what to look for is critical for loss prevention. Here, we have collected and analyzed claims from 18 individual wrap-ups from three states: New York, New Jersey and Virginia. These wrap-up programs accounted for 21,273,811 on site man hours, 1301 work comp claims and 193 general liability claims.

Claims – Severity & Frequency by State

The location of a wrap-up and construction projects in general has a major impact on claim frequency and severity. Below, we take a look at location’s influence on work comp and general liability claims.

Workers’ Compensation Claims

According to our data and experience, wrap-up programs in New York and New Jersey have comparable loss experience in regards to workers compensation. New York does have a slightly higher incident rate (incidents per 200,000 of work hours) and a higher average cost per claim. Virginia has a history of lower average work comp claim costs and frequency compared to New York and New Jersey. Below is a summary of the data:

General Liability Claims

Recently, insurance markets have increasing offered higher and higher deductibles for the general liability coverage component of wrap-ups in New York. Because of labor laws and the high population density of New York City, general liability claims are more frequent and costly than any other state in the Union. According to our data, these claims occur four times more often in New York compared to New Jersey and Virginia, and these claims are much more expensive. Below is a summary of the data:

Claims – Day of the Week

Going even further into when claims occurred, we took a look at what day of the week claims occurred most frequently. Based on our data, the beginning of the work week was much more dangerous than the end.  Experts contribute this trend to the use of drugs and alcohol and lack of sleep over the previous weekend by employees.

Claims – Cause, Type and Body Part

Next, we wanted to look at the type of claims that were made and which body parts were most commonly injured.

The most common body part injured was the finger; this is a common injury in construction and everyday life.  Also, eye and back injuries were very common.  Back injuries can be greatly reduced with proper stretching and lifting techniques, and eye injuries could also be easily prevented with proper eye projection. The most common cause of injures was lifting; as stated earlier, these claims could be reduced with proper lifting and stretching techniques. The second most common cause of injury was slip/trip; this is something that usually can be prevented.  We found that most of these incidents are a result of bad housekeeping; trash, tools, and other items must be cleared from the project site to prevent these accidents.

Controlling claims on a CCIP or OCIP is essential.  Not all claims can be avoided; however, with proper training and supervision, they can be greatly reduced.  Below is a summary of our information:

To start, let it be understood that the method for rating a wrap-up on payroll versus CV is exactly the same.  The underwriter will consider all of the same factors in evaluating the risk regardless to which exposure value the final rate will be applied.  The resulting initial rate will be in terms of per $100 of payroll.  To obtain a rate based on CV, the underwriter merely utilizes the ratio of payroll to CV and some simple mathematics to flip that initial rate into a new rate, per $1,000 of CV value.  For this reason, it is of vital importance to present accurate payroll estimates to the underwriter in the original submission.  If the original payroll estimates presented are too high then the CV rate will also be overinflated resulting in an over payment of premium.  However, the opposite is also true and of more concern to the carrier.

The next and perhaps most vital consideration in rating a program on CV is agreement on the definition of CV itself.  Often times this clarification is given little consideration until time of audit when all parties are anxious to reach a conclusion and debates over which values should be included and which should not delay this process and could result in a disgruntled conclusion to an otherwise pleasurable program.  The following items should be specifically addressed and written into the policy’s definition of CV:

1. Excluded Contracts – often excluded from wrap-ups are material suppliers, contracts with very little on-site labor, local union 3, elevator contractors, surveyors, and of course professional organizations.  Should the CV’s associated with the work performed by these entities be included in the final CV used for premium calculation?  Typically if these values were included in the initial CV estimate (the one that was used for the “flip” from payroll to CV exposure basis) then they should also be included in the final CV value to maintain a consistent payroll to CV ratio.  However, this should be discussed with your underwriter to ensure mutual agreement.
2. Soft Costs – includes items such as fees, insurance costs, land acquisition, design contingency, etc.  I believe that the consensus would be that the typical interpretation of CV would include hard costs only and that soft costs should not be include in either the initial or final CV number.  Again, however, this should be discussed and documented.
3. Contractor Insurance Credits – many CV definitions already address this item by stating that “CV includes all change orders except for those that serve to reduce the CV for enrolled contractors’ costs of insurance”, or something to that effect, but what happens when the initial contract is issued “NET” of insurance and the insurance costs were never included?  The intent needs to be made clear and the method for capturing, or not capturing, these values should be determined.

The final factor to consider, though not nearly as vital as the items listed above, is an established procedure on how the final audit will be conducted and which specific documents will be required.  Carriers vary widely on this stipulation thus it would be imprudent to assume that previous experience with one carrier provides insight into another carrier’s requirements.  A simple inquiry should eliminate any surprises at the end of the program.

This “new” pricing options, like any other change or innovation in our industry can be made simple and advantageous to all parties involved if the line of communications are kept open and consideration is given to the various perspectives brought by each.

What do you think? Payroll or Construction Value as an exposure on wrap-ups? Vote on our interactive poll.

Project Info Checklist – Click for a Project Information Wrap-up Checklist

On February 22nd, CR Solutions decided to partner with the Atlanta-Fulton County Library System and volunteered at the Alpharetta Library Branch. With the help of librarians, Amy Alexander and Cassandra Lamar, we learned how to perform various duties throughout the library. With our work, we were able to help the library catch up on the tasks at hand.  The library volunteer day was considered a great success, and we would be thrilled to volunteer with the library again.

“This has been the most rewarding volunteer experience to date.”  Michelle Burt

I have a client that builds shopping centers typically with a CV of 20-25 million each.  Is it possible for him to do an OCIP or are the projects too small to include?

Terrance, Fullerton, CA

Terrance, it is possible for your client to implement what is referred to as a rolling wrap-up program for these projects assuming that he will complete construction on enough of them in a three year period to meet the minimum volume required by the carriers.  A rolling wrap-up is a series of individual projects of similar type which independently may not meet the size criteria to be conducive for a wrap-up; however, when added together, they meet the requirements to do so. The projects would need to total at least 100 million in construction value with many carriers requiring significantly more volume.   It is very important that the projects occur as planned since any shortfalls could result in the program not meeting the minimum premium requirements which would result in overpayment of insurance.   If you are interested in a rolling wrap-up, feel free to contact us at 678-339-9766 where we would be willing to conduct a feasibility projection to see if it’s viable for your client.

What are common deductible limits for an OCIP on workcomp /general liability?

Edgar, Houston, TX

Edgar, deductible limits depend on a variety of factors such as project location, type, size, duration, whether it’s an OCIP or CCIP, the carrier’s appetite at the time, and the loss history of the owner and/or contractor performing the work.  Historically, wrap-up deductibles have been 250k for WC and 250k for GE; however, the market is hardening, and it is becoming more common to see GL deductibles of 500k or higher. $1Mil deductibles are occurring more frequently in areas like New York.

When would a General Liability only wrap-up make sense?

Calista, Charleston, SC

Calista, in states where traditional indemnity rights and obligations have been eliminated, a general liability wrap up would be attractive.  Also in states where Workers’ Compensation rates have decreased, a general liability wrap up could be a better option than a traditional wrap up program. GL Only wraps are an attractive alternative if putting up collateral for a traditional program is cost prohibitive for the owner.   GL only wrap-ups tend to be more popular with smaller developments and with projects that are below 100 million in hard construction cost. For more information, please check out www.Wrap-App.com which is a new, effective, and efficient way that CRS administers GL-Only wrap-up insurance programs.

A clash deductible is a retention amount that spans multiple lines of insurance coverages which helps protect the owner from bearing the financial burden of multiple deductibles arising out of one loss.  Though difficult to obtain in today’s marketplace, the clash deductible for wrap-ups is generally applied to the workers’ compensation and general liability policies.  So that in the event that a WC claim is also a GL claim, the total deductible may be capped at $350,000 instead of having to pay the full $250,000 on WC and an additional $250,000 for the GL (of course deductible amounts will vary, these numbers are used merely for illustration).