Neatly, With a Bow
Insurance wrap-ups save owners and contractors money.
In 1997, a new state law made wrap-up insurance possible in Hawaii. A wrap-up allows an owner or contractor to obtain a single insurance program that covers the job-site risks for everyone, including the subcontractors. Traditionally in Hawaii, all parties at the job site had to have their own insurance.
Michael Grossi, senior vice president of Marsh Hawaii, says a driving force behind the insurance pooling legislation of 1997 was the construction of the Hawaii Convention Center, but the legislation was not done in time to benefit the state.
Grossi says wrap-ups have been successful in Hawaii because they save money, and the owner or contractor usually gains enhanced and better coverage for everyone than some of the parties would have had with their own policies. According to Grossi, Marsh does seven out of nine active wrap-up programs in Hawaii that he knows of, comprising about 10 percent to 15 percent of Marsh’s insurance business in the construction industry.
Under Hawaii law, a project must have a value of at least $50 million in order to qualify for a wrap-up program. “It’s not a panacea. It’s not right for everyone. It’s not right for every project. It’s an insurance mechanism that is out there. It’s available, and, if you have a project of that size, you should look at it,” Grossi says.
One of Marsh’s clients that did look at wrap-ups and bought into them is Haseko (Hawaii) Inc., developer of Ocean Pointe, the former Ewa Marina project. Haseko Project Manager Ray Kanna says he had always been pushing his company to do a wrap-up, even before the Ocean Pointe project. Says Kanna: “In my past employment, wrap-up was always a goal I wanted to achieve, because in big projects, it’s actually a huge moneymaker. It creates a lot of opportunities for us.”
Kanna declined to give a dollar figure, saying it was difficult to quantify savings, because they are still ongoing. Part of the wrap-up process is that the policyholder becomes the insurer in some ways, because of the high deductible (often around $250,000 an occurrence), and may be paying claims for as long as 10 years after construction is completed.
Says Kanna, “Up until last year, I easily saved 30 percent, and actually I’m going to need that 30 percent, because after the World Trade Center [incident], obviously insurance costs are going to rise significantly. The next year or two are going to be pretty catastrophic insurance years.”
Gentry Homes Ltd., the developer of a competing residential project, Ewa by Gentry, has also gone wrap-up through insurance broker King & Neel Inc. Gentry general counsel Dawn Suyenaga says Gentry’s initial rolling wrap-up insurance program covered the construction of about 650 homes from 1999 to 2001. The program, including premiums, administrative costs and safety programs, cost more than $1.3 million. The deductible was $250,000 per occurrence, with a maximum exposure to Gentry of about $1.3 million. “The qualitative benefits of the program are real, in that we saw significant improvements in safety and cooperation in the field,” Suyenaga says. “The monetary benefits can’t be calculated, because of the long “tail period” for claims, but, at this point, we feel that there have been savings on an overall basis.”
King & Neel Vice President John McGuire says a wrap-up is not a simple thing, but works well under a team concept involving the broker, insurance company (in this case, Zurich Financial Services Group), and the developer and subcontractors. In McGuire’s opinion, “There aren’t many things in life where it just seems that everything fits perfectly, but this is one of them. Everybody works well together, and it’s based on – even though we’ve only done it for three years – the foundation for this wrap-up was built over 25 to 30 years.” Marsh’s Grossi concurs with the wrap-up assessment. “It’s very good when it’s done right. It really works out well, and everybody wins,” he says.