As a construction project owner, implementing a structured insurance strategy often slips down the priority list and gets left to the last minute. It is, however, critical to consider the specific project risks you, and other parties involved along the chain, are exposed to so that you can secure the most appropriate insurance.
In this article, we discuss why an owner-controlled insurance programme (OCIP) could be the preferred option over a contractor-controlled insurance programme (CCIP) for purpose-built student accommodation (PBSA) project owners.
Coverage certainty
There are many cases where the traditional approach of leaving the contractor to manage the project’s insurance under a CCIP will be suitable. Afterall, it is the contractor who will be responsible for the assets on site during construction. Typically, a CCIP will provide construction all risks (CAR) and third-party liability (TPL) cover.
However, PBSA owners are likely to be required by their financiers to protect themselves against the risk of lost student rent caused by a delay in practical completion. Delay in start-up (DSU) insurance, which provides cover against the loss of revenue following physical damage to the contract works, is only available to the project owner and must be attached to a CAR policy. Arranging both covers under an umbrella OCIP policy can therefore provide the PBSA owner, and project financiers, with the peace of mind that if practical completion is delayed just when students return at the start of the academic year, they are covered.
Opting for an OCIP requires the project owner to provide its broker with detailed project information so that all risks are understood before being presented to the insurer. Whilst this requires more resource than leaving the contractor to handle the process, it ultimately gives the owner full control of their risk management strategy and the opportunity to understand any coverage gaps before the project starts, rather than when the loss occurs.
Coverage continuity
Following sustained supply chain and cost inflationary issues, there have been several high-profile contractor insolvencies, often leaving project owners in a vulnerable position midway through construction.
If a PBSA project is insured under a CCIP and the contractor enters administration, any insurances will normally become void. Partially completed accommodation presents a greater risk of damage and an absence of suitable insurance cover will require management in conjunction with the University. As a project owner, finding a new contractor to complete the unfinished works and integrate its insurances into a new programme can be complex and time consuming. Also, given that the new contractor will be taking on incomplete works, which presents an increased risk, insurers are likely to request higher premium rates or reduced coverage for the remainder of the project.
Cost savings
A CCIP policy is often considered to be more cost-effective than opting for an OCIP, though this will largely depend on the size of the student accommodation project. If the project fits under the contractor’s annual insurance facility, the CCIP will receive competitive coverage and market rates. If the project is too large for this, it will require a project-specific insurance policy. In this case, an OCIP can be more cost effective in the long run.
An OCIP strategy will also mean that all supply chain members are insured under the same policy, with the same insurer and as a result, would expect to see fewer disputes and a more streamlined claims process. Furthermore, an OCIP means that the contractor and subcontractors are no longer required to evidence their insurances, resulting in reduced project cost and administration.
Realising the cost benefits of an OCIP can be tricky and this can depend on how the contractor recovers its insurance costs across its business. We always recommend that contractor pricing is sought on either an OCIP or CCIP basis, making it transparent during the tender stage which cost savings can be realised against which insurance option.