Controlled Insurance Program (CIP): Meaning, Types, Example

What Is a Controlled Insurance Program (CIP)?

A controlled insurance program (CIP) refers to an insurance product that provides coverage on a construction project. A CIP pools together coverage for contractors and subcontractors into a single policy.

One party purchases a single insurance policy on behalf of the other parties working on a project and gets reimbursed by them. A CIP policy can provide greater purchasing power, lowering risks by obtaining comprehensive construction insurance coverage at a lower cost.

How Controlled Insurance Programs (CIPs) Work

Controlled insurance programs represent a type of commercial insurance commonly used within the construction industry. Typically, construction projects require various parties from start to finish and specializations, such as developers, contractors, and construction managers.

Each party typically maintains its own insurance policies to avoid paying for damages or injury claims out of pocket. However, exclusion gaps can occur, leading to inadequate coverage of certain risks. Also, some parties may fail to buy enough insurance to mitigate their covered risks, and if one of these parties is deemed responsible for damages, they may be unable to pay and fall into bankruptcy.

Role of the Project Leader

As a result, the property owner or project leader may purchase a CIP on behalf of the project participants to help ensure they have adequate coverage. Typically, the project leader might be a general contractor or a development firm.

The project leader pays the policy's insurance premiums upfront and gets reimbursed by the remaining project members. The repayment can be made through direct payments or by reducing the payments owed to members as part of the construction project.

Benefits of a Controlled Insurance Program (CIP)

A controlled insurance program helps the individual parties involved in the program enjoy greater purchasing power than any members could individually. As a result, the parties reduce their overall risk and cost of insurance by coming together into a single policy.

Special Considerations

CIPs bring a variety of different coverages together, including workers’ compensation, general liability, employer's liability, and excess liability. Other types of coverage, such as environmental or professional liability, can be added to the policy on an ad-hoc basis—called riders. However, these riders typically increase the annual insurance premiums.

Although CIPs are most commonly used on single construction projects, they can also be helpful for other uses. For instance, companies may take out these policies to protect themselves in the ongoing maintenance of a large facility or on an ongoing basis to cover a series of construction projects.

Types of Controlled Insurance Programs (CIPs)

CIPs fall into two categories: contractor-controlled insurance programs (CCIPs) and owner-controlled insurance programs (OCIPs).

Contractor-Controlled Insurance Program (CCIP)

CCIPs—also called wrap-up insurance policies—provide parties involved in a construction project with risk management. With a CCIP, the lead contractor takes out the single policy to cover the project, with their name on the policy. All of the other parties involved coordinate with the lead contractor for reimbursement or to file claims.

Owner-Controlled Insurance Program (OCIP)

Owner-controlled insurance programs are an alternative to CCIPs. Rather than the contractor taking out the policy, the project or property owner buys the insurance. Although commonly used in large projects, OCIPs are gaining popularity for projects of all sizes.

Example of a Controlled Insurance Program (CIP)

Let's say Michaela owns a real estate development firm. Over the years, she has developed a network of trusted contractors on whom she relies for specialized labor such as excavation, plumbing, and construction services. Some of the contractors are relatively large businesses with their own standard insurance policies, while others are sole proprietorships or small businesses with limited insurance coverage.

To help ensure the projects have adequate insurance, Michaela takes out a CIP that covers her risks as a developer and the unique risks of her contractors. In return, the partners reimburse Michaela’s firm for the cost of the CIP by paying for their share of the insurance coverage.

If the parties work together on multiple projects, they can structure their CIP coverage to remain in place over several jobs. Alternatively, they can obtain a separate CIP for each job to maintain flexibility and work with different partners.

Frequently Asked Questions (FAQs)

The Bottom Line

A controlled insurance program (CIP) provides insurance coverage for multiple parties working on a single project under one policy. The construction industry commonly uses CIPs for projects with various professionals, such as contractors, builders, and developers.

The general contractor or project leader usually buys the CIP on behalf of the group and gets repaid by the project participants. By pooling their resources together, the CIP parties get comprehensive coverage at a lower cost than could be bought individually.