Huntsman Corp.'s owner-controlled insurance program has saved the company about $20 million since its inception, according to Brian W. Merkley, the Salt Lake City-based chemical manufacturers' global director of corporate risk management.

Under the OCIP, which was established in 1996, “we provide workers compensation and general liability insurance for our contractors that do certain maintenance and construction activities” for the company's larger U.S. sites, Mr. Merkley said.

“In return for Huntsman arranging the insurance and paying all the premiums and the claims within the program's deductibles, we ask contractors to reduce their labor rates equal to the amount that they otherwise would have paid,” he said. These are funds “they would have charged us in their rate, if they had had to provide those insurances on their own,” which is known as a bid deduction, he said.

Mr. Merkley said one of the things he did within the first few months of joining Huntsman in 2005 was to bring many of the OCIP administration activities in-house, including tracking payroll reports and managing claims. “We feel that improved the overall information flow and coordination with our U.S. purchasing, legal and environmental health and safety teams,” he said.

“And it aided immensely in terms of tracking contractors who were actively doing work at our sites, managing the claims, analyzing the losses, forecasting contractor payrolls and bid deductions, as well as evaluating the overall economics of the program,” Mr. Merkley said.

The risk management department conducts an actuarial study semiannually, looking at how much the company has saved by putting this program in place, and “it's made good economic sense, from a cash-flow savings and from an ultimate incurred loss basis,” he said.

“More qualitatively, I would say it provides greater certainty around contractors' insurance coverage. It eases the overall contracting process, it definitely improves control over claims, it's virtually eliminated disputes with our contractors when a loss does occur, and it's delivered for us an average of about a million dollars in savings per year, so we're talking $20 million over the course of the program,” Mr. Merkley said.

Huntsman also has a construction all-risk program. “We're doing expansions around the world where every year we'll spend hundreds of millions or billions in capital, either building new facilities or expanding existing facilities,” he said.

Mr. Merkley has put in place a multiyear global construction all-risk facility for larger projects valued at more than $25 million over the past few years, covering projects in North America, Europe, the Middle East and Asia, particularly China.

This is a builder's risk program covering physical damage that might happen in a plant during construction, or third-party liabilities that might arise because of construction activities, including harm to contractors, Mr. Merkley said.

“Traditional solutions involve detailed underwriting on each particular project, so you're getting into very detailed specs, design and technical details, local and/or international marketing in the insurance market before each project,” and this has been a burden “for not only my team but also for the project manager at the particular location,” he said.

This program “would allow for really more automatic property and (general liability) coverage” and permits the company to do so “in an efficient fashion,” he said.

Furthermore, he said, “It really created more certainty around the actual coverages, so by bringing to market a lot of different projects at once, we could negotiate broad coverage terms,” designate claims adjusters and negotiate coverage enhancements, including for design errors and faulty workmanship.

This approach also takes into account possible delays in startups that might occur because of physical damage losses.

“You build this plant, you go to start it up or commission it, and something happens,” Mr. Merkley said. “It catches on fire, or it explodes, or a heat exchange doesn't work correctly, and it just results in all sorts of fouling and clogging up of pipes and reactors.”

But with this program, “You can put projections around delay in startups, essentially fixed costs, and any interest charges if it is a bank-financed project,” he said.

“What we found is it also greatly facilitates just the contracting process,” Mr. Merkley said. “It seems to work a lot better with us bringing the program to bear, the insurance protections, rather than having to do all the back-and-forth negotiations with the actual contractor responsible for building the plant. So it's ultimately been a much more efficient construction risk solution.”