Insurance: Owner-controlled Program Becoming Popular With Government Agencies
Small construction companies will now have more chances to bid on San Diego Unified Port District projects now that it’s using a non-traditional type of insurance, a district official said.
Known as an owner-controlled insurance program, the approach is being used by more government agencies around the country, said Linda Wikstrom, risk management analyst with the port. The board of port commissioners approved the program in September, she said.
Because the owner is picking up the cost of insurance for itself and the builders, small firms , some owned by women or minorities , will now be able to participate, she said Monday. That’s because they won’t have to pay the upfront costs of their own insurance, she added.
There’s a substantial savings on insurance premiums for the district as well, she said.
“We’re estimating between $1 million and $1.5 million in savings over a four-year period,” Wikstrom said.
The total bill for the port for general liability, workers’ compensation, excess liability, excess auto liability, professional liability and builder’s risk will be about $3 million over the next four years for projects at the airport, she said.
There are more than 22 separate projects on the drawing boards for the airport, such as repair of the runways and construction of the new international terminal, which will be covered by the new insurance method, she said.
“We’re also in the preliminary stages of adding in all other public works projects for the district to this kind of policy,” she added.
Public Projects Also Involved
Rob Hibler, an agent of Marsh USA, an insurance brokerage in La Jolla that arranged the policy, said the program is popular not only with government agencies, but also for large private projects, such as the San Miguel Parkway toll road in Chula Vista.
In addition to the port, the County Water Authority has adopted this kind of insurance for its emergency storage project that includes several dams and reservoirs in North County, said Alan Ames, a spokesman for the water authority.
The city of San Diego has used the same type of insurance program on some of its projects, Wikstrom said. Among them is the city sewer system rehabilitation currently under way.
Another benefit from the program is increased efficiency, since it allows the port to establish operational policies covering all parties involved in the construction, said Don Waddell, a risk management consultant with Parsons Constructors Inc. of Pasadena. That firm is doing program management for the water authority project.
He said there has been a substantial increase in the use of owner-controlled insurance policies in the last five years by both government agencies and private developers.
“The greatest motivator for all concerned is to save money, which this type of program does,” Waddell said. “This type of program is a way of controlling risk management costs on construction projects that are typically out of the control of the owner in traditional construction jobs.”
One benefit includes improved safety, since a safety program is an important part of the overall program, Wikstrom said.
Litigation costs can also be reduced since all insurance is coordinated through the district instead of the vagaries of different policies with different coverage amounts, Wikstrom said.
Peter Yee, risk management liability claims supervisor for San Diego, said the city has been using a similar program for four years on the replacement and upgrading of its sewer system.
“We’ve actually been very pleased with the safety record concerning contractor injuries,” Yee said. “We had premiums returned for two years because of a very low accident rate. There’s a very, very proactive safety program going on with the contractors in this program.”
Yee said from July 1994 through July 1999, the city spent $16.68 million on the insurance package for the contractors working on the sewer replacement project.
His department projected that if the traditional method of bidding, where contractors pay their own insurance cost and tack it onto their bids, had been followed the cost of insurance would be $25.7 million.
“Our program also allows $100 million in liability protection for all contractors, which is something they would have trouble paying for individually,” he added.