OWNER COORDINATED INSURANCEPROGRAMMESFOR CONSTRUCTION PROJECTSWHAT IS AN OWNER COORDINATED INSURANCE PROGRAMME?An Owner Coordinated Insurance Programme (OCIP) is an insurance programme e� ected by the Employer on behalf of all contractual participants which is normally structured to meet the key asset, legal liability and fi nancial risks associated with an Employer’s construction project/s.

Normally such programmes would consist of the following insurances:— Works— Third Party/Products/Non-Negligent Liability— Delay In Completion, i.e. loss of income, loss of interest and/

or additional costs etc consequent upon delayed project/contract completion

OCIPs can be provided as either one-o� insurance placements or as annually renewable programmes of cover.

WHY OCIP?Generally speaking OCIPs are adopted when:— The Employer requires a greater degree of insurance

cost and coverage certainty and more pro-active risk and claims control

— There are substantial fi nancial exposures consequent upon late project completion which are often inadequately addressed by contractual damage provisions

— A project is complex or specialist in nature— The cost of a single project is in excess of £50 million

because existing Contractor annual insurance arrangements cannot automatically insure such large projects

— There is external fi nance and therefore lender/funder insurance issues to be satisfi ed

— The Employer is contractually required to procure insurance.

EXTENSIONS TO OCIPSIt is possible to extend OCIPs to meet project/contract specifi c exposures of the Employer. Indeed one of the great benefi ts of such programmes is their fl exibility to respond to such requirements.

Potential extensions to an OCIP would include cover for:— Existing property for incorporation within the works,

e.g. pre-existing foundations, facades etc— Pollution and contamination liabilities/costs— Construction plant and equipment, temporary buildings

and contents— Latent or inherent defects in completed works post

practical completion— Indemnities/Contingent liabilities, e.g. defective title,

defective lease, restrictive covenant etc.

ADVANTAGES AND DISADVANTAGESThere are numerous advantages in adopting this method of procurement.

— A single focus for the purchase of insurance ensuring that full protection is in place and disputes between parties and their insurers are avoided. A single construction insurance programme arranged by the Employer permits an overview of his entire development or development portfolio and can be structured to respond to the many diverse interests, liabilities and risks of all contract participants. All wordings produced for such placements are bespoke forms often unique to the appointed insurance consultant.

— The ability to include within the insurance programme the project lenders’ specifi c insurance requirements which are often critical to achieving initial drawdown of funds on such developments. Total control by the Employer may be essential to ensure that any lender specifi c insurance coverage and associated requirements are met (see attached Lender Insurance Clauses).

— An opportunity for the Employer to purchase key fi nancial protection. Control of insurance procurement will enable the Employerto extend the project insurance programme to address their own specifi c fi nancial exposures consequent upon delayed project completion, e.g. loss of income, loss of interest and additional costs. This is not possible if the Contractor arranges the Works Insurances.

— Value for Money It is almost impossible to provide a strict value for money assessment on whether an OCIP is better value for money than a Contractor arranged insurance programme, based purely on premium cost, because they rarely cover the same risks. However, an OCIP will:

— eliminate the need to check the scope and currency of most of the insurance arrangements of other project participants

— eliminate gaps in or duplication of key insurances — provide a coordinated claims reporting and handling

facility which will not only ensure that the Employer has greater control over repair and reinstatement of damaged property but will also assist in the expeditious settlement of claims.

All of these issues will provide very real savings in the costs associated with an Employer’s project/s.

Additionally such an approach provides the following benefi ts:

— An opportunity of fully identifying and managing the key risks associated with the Employer’s project/s;

— An opportunity to negotiate broader policy coverage than would otherwise be the case;

— An insurance programme that responds to the risks and exposures of all participants in the project/s regardless of risk apportionment under the various agreements and contracts;

— Continuity and certainty of cover (cover in place for entire project period and is non-cancellable by insurers) at a pre-determined cost;

— Increased security;— Ease of administration and a rigorous ongoing risk and coverage

review by the Employer’ appointed insurance consultant.

It is di� cult to fi nd many disadvantages to the OCIP approach but invariably the following may be listed as reasons why it should not be pursued:

— Additional costs associated with adopting a di� erent insurance procurement methodology.The procurement methodology needs to be incorporated within all of the major contracts and agreements pre-tender to ensure that all parties are clear on insurance responsibility, i.e. who is responsible for insuring what. If the contract is subject to OJEU procurement protocols, the appointment of an insurance adviser and provision of insurance services from insurers will need to comply with such protocols. Separate briefi ngs may also be required with contractors to explain the scope of the OCIP and its associated claims management protocols.

— The proposed programme may contain higher or di� erent excess levels than those carried by tendering parties and/or the appointed contractor and key suppliers making it di� cult for such parties to price their insurance costs.It is virtually impossible to ensure that the excesses within an OCIP completely match those utilised by tenderers because each company will have a di� erent philosophy on how they wish to mitigate and manage risk. In extreme circumstances it is possible that contractors will increase their costs if they are required to accept higher excess levels than they would normally enjoy under their annual arrangements.

— Contractors may not provide a realistic reduction in their insurance/tender costs to take account of an OCIP which will increase direct insurance costs.The amount of reduction of contractors’ insurance costs normally varies widely if an OCIP is in place. Some contractors may argue that since they automatically include an overall percentage for insurance in every contract that it is impossible to provide any saving especially since they still need to insure a number of their own risks.

— Contractors may take a more ‘relaxed’ approach to risk management.On a few occasions it has been known for OCIPs to have a potentially adverse e� ect on contractors’ risk management protocols, with the mentality that claims made on an OCIP will not a� ect their own loss experience and the cost of their annual arrangements.

MANAGEMENT OF OCIP DELIVERYThe services provided up to and including the initial period of cover will encompass the following:

— Information GatheringObtaining appropriate details of value, type, scope and duration of individual works contracts, any relevant claims history and copies of the bespoke or details of the standard Building Contract Forms utilised by the Employer.

— Review Project Contracts/AgreementsReviewing all relevant contracts and agreements, i.e. standard amendments to Building Contracts, draft lease agreements etc.

— Risk AnalysisReviewing the type of works contracts undertaken by the Employer and their inherent risk profi le. The review to assess the key risks and indicate those that are normally insurable, those which can be insured but where insurance market capacity is limited and/or premiums are very expensive and those for which no practical insurance solution exists.

— An Assessment of Insurance AvailabilityProviding the Employer with an overview of the insurance market including an assessment of insurance availability, cost and capacity.

— Advice on an Insurance ProgrammeProviding the Employer with advice on the various methods ofsecuring insurance for their works contracts with emphasis onthe security and service of insurers and the scope of cover, limitsand cost of available insurance.

Proposing and pricing an insurance programme which takes into account the Employer’s risk exposures, the extent to which these exposures are insurable and the Employer’s ability and/or willingness to bear risk.

— Amendments to Standard/Bespoke Building ContractsProviding suitable amendments to standard Building Contract Forms and/or bespoke forms to refl ect the agreed level of risk transfer and the scope of the insurance programme e� ected on the Employer’s behalf.

— Insurance Programme SummariesProviding the Employer with suitable synopsis/es of the insurance programme for insertion within future tender documentation.

— Insurance Programme QuotationsProviding the Employer with suitable quotations for the proposed insurance programme and agreeing the fi nal scope and terms of that programme.

— Insurance Programme PlacementUpon receipt of the Employer’s instruction placing the agreed insurance programme and ensuring that:

— it refl ects the cover, conditions, limits and the terms that the Employer has stated in writing that it requires

— the insurance requirements of the Building Contracts and any associated agreements are met.

— Account ServicesProviding the Employer with documentation confi rming the basis of the cover secured, including details of the insurers, with a debit note or premium billing, where applicable, showing separately all the amounts payable.

Forwarding any policy documents, if applicable, and any amendments or endorsements to the policy/ies as soon as reasonably practicable.

Arranging review meetings and such other meetings with the Employer as required.

Amending, altering or extending the covers within the agreed insurance programme as required by the Employer, to the extent achievable in the insurance market, and confi rming such amendments, alterations and extensions to the appropriate parties in compliance with contractual requirements.

— Claims Management ServicesAgreeing a claims handling procedure with the Employer and the insurers, to handle all claims under the agreed insurance programme. Taking responsibility for:

— Administration of the claims handling procedure — Notifi cation of claims to insurers in accordance with policy

requirements following initial notifi cation of a claim by an insured

— Close liaison with the Employer, insurers and loss adjusters to ensure that all claims are processed as e� ectively as possible

— Administration of all claims notifi ed to insurers during the period of our engagement until each claim is fi nalised or where we are satisfi ed that the Employer has instructed another entity to assume the claims servicing obligations for its (re)insurance.

Willis Limited

The Willis Building 51 Lime Street London, EC3M 7DQUnited KingdomTel: +44 (0)20 3124 6000Fax: +44 (0)20 3124 8223

www.willis.com

Willis Limited, Registered number: 181116 England and Wales. Registered address: 51 Lime Street, London, EC3M 7DQ. A Lloyd’s Broker. Authorised and regulated by the Financial Services Authority.

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