SAN DIEGO-A groundbreaking wrap-up insurance program for a San Diego sewer improvement project has lowered the city's insurance costs, reduced its workplace accident rate and won it honors in a national contest.

The city is expected to save more than $20 million in insurance coverage for the greater portion of a $1.56 billion sewer improvement project by using the owner-controlled insurance program assembled by Sedgwick James of California Inc.

San Diego also is expected to reap additional savings in workers compensation costs since the introduction of open rating in California in 1995 permitted it to convert to a loss-rated plan from a retrospectively rated plan, according to Dan Danilewicz, senior vp in Sedgwick's San Diego office.

The city won one of 10 honorable mentions in the 1996 Technology Achievement Awards competition in the area of finance for a submission titled "Owner Controlled Insurance Program for the Metropolitan Wastewater Department."

The submission was one of 265 entries in this year's contest, sponsored by the National League of Cities, the National Assn. of Counties and the International City/County Management Assn; Governing magazine; and Compaq Computer Corp.

The award was the icing on the cake for Jerry Johnson, claims and insurance manager for the city of San Diego, who worked for three years to change the California Government Code to allow the wrap-up.

"We co-sponsored a bill with the city of Fresno to permit the wastewater treatment wrap-up," he recounted. The bill was passed in January 1995.

Mr. Johnson's lobbying efforts won the attention of other municipalities, which banded together to seek passage of additional legislation last year that would allow wrap-up programs for all public construction projects valued at $125 million or more.

Before these two amendments to the California Government Code were enacted, public entities were not permitted to assemble owner-controlled insurance programs, also known as "wrap-ups."

Wrap-ups have grown in popularity because of the cost savings they can provide, Mr. Johnson explained.

For example, the city of San Diego will save more than $22 million in construction costs by providing a single policy to cover the more than 300 contractors participating in a portion of the wastewater project valued at nearly $1 billion.

Under a construction wrap-up program, contractors usually receive workers compensation, general liability, builders risk and excess liability coverage under a single insurance policy purchased by the project's owner.

This allows the contractors to subtract the cost of insurance from their bids. The project owner then collects premiums from the contractors to pay for the wrap-up policy, which costs far less than the contractors would pay for such coverage on their own.

Additionally, dealing with one insurance company allows "strong, centralized claims handling," Mr. Johnson said.

The Los Angeles Metropolitan Transportation Agency assembled a similar wrap-up program for its downtown subway project, and the Bay Area Regional Transit Authority in San Francisco used one to provide insurance to contractors that built the subway there(BI, Sept. 20, 1993).

Both of these entities had to lobby the California Legislature for exemptions to the Government Code's ban on wrap-ups.

The San Diego OCIP provides the city with $100 million in total liability coverage underwritten by Argonaut Insurance Co., Agricultural Insurance Co., USF&G Corp., Federal Insurance Co. and Royal Insurance Co.

Argonaut, the primary liability insurer, also serves as the work comp insurer.

Estimated premiums for the current year on primary coverage are $1 million for builders risk, $1.1 million for workers comp and $1.3 million for general liability.

All of the coverage is written on an admitted basis in California.

Besides providing insurance, the San Diego OCIP, which began in July 1994, also includes a comprehensive risk management program that has reduced contractors' work injury incident rate to 3 or 4 per 100 employees per year, far below the normal incident rate of 14 to 15 per 100 employees for similar projects.

By implementing the wrap-up, the city "is currently realizing lower insurance costs due to volume discounts, control, broader coverage, higher limits, elimination of overlapping coverages, a better managed safety and claims management program and return of premiums to the city," wrote William J. Hanley III, deputy director of services and contractors management for the city of San Diego, in his submission to the Public Technology Achievement Award competition.

And, "since the insurance program covers all subcontractors, this makes it easier for minority-and women-owned businesses to qualify for the work, thereby encouraging minority and women participation," he said.

Furthermore, the city has significantly more control over its construction program because with the central claims handling under a wrap-up, the contractors are required to provide incident reports and other claims-related information to the construction manager, who in turn forwards it to the broker and the primary insurer rather than directly to state authorities, Sedgwick's Mr. Danilewicz explained. And with the cost savings, the city has more resources to apply to staff functions such as safety and loss control monitoring, he added.

"This is definitely a team effort involving the client, the construction manager, the consultant, the insurance carriers and the broker," Mr. Danilewicz said.

"We all work together, we have committee meetings once a month.

It has to be a team effort. You don't just do it by placing insurance and hoping that you get the savings."