Why UK developers should consider owner-controlled insurance programmes amid rising contractor failures

In the current construction environment, contractor insolvency poses a significant risk to developers. An Owner-Controlled Insurance Programme (OCIP) offers a strategic solution to mitigate these risks by providing developers with enhanced control over insurance coverage, reducing dependency on contractors’ financial stability, and ensuring project continuity in the event of contractor insolvency.

This approach not only addresses the risks associated with contractor failure but also offers a cost-effective and streamlined method for managing risk. For UK developers facing an unpredictable market, an OCIP provides the assurance needed to complete construction projects successfully, irrespective of the financial status of individual contractors.

An OCIP is a tailored set of construction insurances designed primarily for the benefit of the Employer, but it also covers other parties involved in the project, such as main contractors, subcontractors of any tier, and funders.

Typically, an OCIP includes Construction All Risks, Terrorism Third Party Liability, and Non-Negligent Liability insurances, with the option to extend coverage to include Delay in Start-Up insurance.

The OCIP remains active until the project’s practical completion, ensuring continuous coverage. If a new contractor is appointed, they can be seamlessly added as an insured party.

The benefits of an OCIP in addressing contractor failures and providing substantial advantages to developers in the UK market include:

1. Enhanced Control Over Coverage and Claims: Developers gain direct control over insurance coverage and the claims process, eliminating reliance on contractors to secure insurance, which can vary in quality and limits. In the event of contractor insolvency, developers can manage claims directly, avoiding delays associated with contractors’ financial issues.
2. Reduced Claims Exposure: When contractors arrange their own insurance, their financial health can impact their ability to pay claims. An OCIP ensures claims are managed under a single policy, reducing the risk of an insolvent contractor being unable to meet liabilities. This provides developers with peace of mind, knowing that insurance coverage is not dependent on individual contractors’ financial health, and
   claim proceeds are less likely to be caught in legal disputes.
3. Seamless Continuity in Project Delivery: An OCIP maintains project continuity even if a contractor becomes insolvent. The insurance programme covers the entire project, allowing work to continue without the need to arrange alternative coverages or find new contractors. This minimises disruptions and helps maintain the original project timeline, protecting the developer’s investment.
4. Mitigating Legal and Financial Risks: Contractor insolvency can lead to legal and financial challenges for the project owner, especially if there is unfinished work or unresolved liabilities. An OCIP mitigates these risks by ensuring adequate insurance coverage to handle potential legal claims, repair costs, or other financial repercussions.

The impact of contractor insolvency on developers includes project-related consequences such as delays, loss of revenue, increased build costs, and legal and contractual amendments leading to additional expenses. Insurance-related consequences include the potential loss of coverage if the contractor procured the insurances, necessitating urgent alternative arrangements, ideally through an OCIP. Mid-term OCIP placements may involve restrictive terms, higher excesses, and inflated premiums.

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