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Wrap-Up programs often provide Excess coverage to Trade Contractors while working on the project. This allows the program Sponsor (Owner or General Contractor), to receive a “credit” for the Excess coverage from the Contractor.
An insurance credit is a money deduction from the cost of insurance. The Sponsor provides and pays for the project’s insurance through a Wrap-Up program. The Contractor’s corporate insurance costs are removed from their contract since the Sponsor is providing the insurance coverage.
An Excess credit works the same way as any other Wrap-Up coverage credit. If the Sponsor doesn’t receive the Excess credit from the Contractor, the Sponsor is then paying for Excess coverage twice:
- Excess coverage under the Wrap-Up
- Excess insurance charge the Contractor included in their bid that wasn’t deducted
Under a Wrap-Up program, the Sponsor pays for the Excess coverage. Regardless of bidding net or bidding gross, the Excess insurance cost should be part of your insurance calculations.
Flat Excess Rates
One of the perks for Contractors working on a Wrap-Up is that Contractors can receive credits on their corporate insurance policy. However, a big problem is many of them do not actually receive their excess credits.
Excess rates are often “flat” and don’t adjust based on the amount of work the Contractor does. This means the Contractor is paying the same amount of insurance money regardless of their participation in a Wrap-Up and not receiving any Excess credit for it.
In addition, even when the Excess rate is flat, the Contractor still has to provide an Excess credit to the Sponsor. This is usually calculated by using the Contractor’s own insurance policy information including their exposure and premiums. Unfortunately, even if the rate is flat, there is still a cost to the Contractor. Usually, a portion of the Excess premium is calculated and attributed to the amount of work performed for the project—and this would be the Excess credit.
Restructure Your Excess Policy
One solution is for the Contractor to structure their Excess policy differently with their Insurance Carrier. This would allow the Contractor to receive a credit. The Contractor can negotiate their coverage to:
- Exclude any work done that a Wrap-Up covers
- Only apply in Excess of the Wrap-Up policy
This would allow the Contractor to receive a credit for their work done on the project that has a Wrap-Up. Not only does this provide an Excess credit for the Sponsor of the Wrap-Up but also the Contractor.
If you find your company working on many Wrap-Ups, it’s best to evaluate your current corporate insurance program. It’s important to make sure you have the best policy and the correct coverage for the type of work you do. If you have questions about your Excess policy or any other insurance coverages, reach out to TSIB today!
