The Evolution of Wrap Ups: From a Specialized Solution to a Mainstream Product

Welcome (00:02):
Welcome to the Astrus Advantage Podcast, where we share timely insights on risk, underwriting, and insurance trends shaping the construction industry and beyond. Each episode brings practical perspectives from industry leaders to help you navigate complexity with greater clarity and confidence.

Danette Beck (00:20):
Hey, everybody. Its Danette Beck. We're here for the Astrus Advantage Podcast. I think it is going to be a really fun one today. I've got one colleague and close friend and another non-colleague, but close friend with me today. And we're going to talk about wrap-ups and what you may hear as owner-controlled insurance programs or contractor controlled insurance programs. And what we want to talk about today is really the evolution from a capacity-driven solution for what used to be the largest project. So think stadiums, bridges, hospitals, hotels, that it was really for those large projects in for a strategic choice to today for a much wider range of construction work. And as access has expanded, the real differentiator, it really truly has shifted, and it is no longer who can place coverage, but it's who can help manage uncertainty and make programs work through project completion. And so I'm super excited to have Josh, who is the president of CR Solutions, and Ben Slocum, our lead underwriter for wrap-ups here at Astrus, to join me today. So Josh, love for you to introduce yourself to the audience.

Josh Rogove (01:24):
Yeah, thanks, Danette. Thanks, Ben, for the opportunity. Hello, everyone. My name is Josh Rogove, president of CR Solutions. Personally, I've been in the insurance business since 2001. I bring to this podcast some experience where I started as an underwriter and today I represent CR Solutions as administrator. So I'm excited to really jump into these conversations.

Danette Beck (01:44):
Yeah, me too, Josh. And Ben, give a shout to the team.

Ben Slocum (01:47):
Hey, guys. And thanks Danette for setting this up, and thanks, Josh, for doing it with us. So I've been doing wrap-ups since 2007. I started on the admin side. I actually worked with Josh, flipped over to the underwriting side about 11 years ago, so I've been on both sides, but all wraps for 19 years. So a lot of wrap-ups in my experience.

Danette Beck (02:10):
I know. And the reason why I know these guys for so long is that I used to be on the broker side before joining Astrus, and I spent the better part of 30 years running, placing, and organizing owner-controlled and contractor-controlled insurance programs really all over the world. And so having some experience in this space, I think it's going to be a really interesting conversation. And I want to go back because I don't like to tell my age, but I'm about to tell my age because if you go back to the 90s and the early 2000s, wrap-up really was associated with those major projects that I mentioned, you know, a stadium, hospital, airport, high-rise. In fact, I worked on all of them. And today, the conversation's kind of changing a little bit. And I remember in my very first job at a predecessor company to Marsh.

Danette Beck (02:54):
Literally the first day on the job, I get a project. I'm going to keep the name out of it, but it's a very large amusement park builder that is domiciled in California and also builds in other locations like Florida, which may get the sense. And I got a retro adjustment for a project that they did back in the 80s. So wrap-up's really been around for a long time. And part of the challenge that this company had is that they were still doing retro adjustments in the 25 years after they finished that construction project. And so you can see how limited the market appetite was or really just the capacity that was there. And at the time, it was one kind of structure, and really, frankly, only six carriers that could do it. So, you know, today, I want to talk about projects that would never have probably considered a wrap-up before and what has changed, and what should sponsors really be thinking about now?

Danette Beck (03:43):
And so, the general question or theme that we are going to talk about on today's podcast is this theme. A wrap-up isn't just a way to place insurance. Its a decision about how an owner or a general contractor wants to organize risk across your project. So we're going to dive into it. And before we can go forward, I'm going to go a little bit backwards. So, to understand the choices sponsors have now, its going to help us to remember what was limited back then. And so, Josh, I'm going to come to you first. And that is thinking back to your AIG days in the early days of setting up CRS. When you think about that earlier period, what made a project a realistic candidate for a wrap-up? And how much of that was driven by the project's risk versus the capacity available?

Josh Rogove (04:31):
Yeah, that is a good question, Danette. So, when I started at the underwriting desk, I was part of AIG. We were one of the six players in the game. Back then, obviously, we had less competition on the underwriting side, which mean less capacity out there for the market, essentially, to access these programs. Back then, the typical profile was really, in most states, if anyone had a construction project over $100 million in hard cost construction value, there was an opportunity to explore the wrap-up. So, definitely limited opportunities out there. Over my time working at AIG, we definitely changed that profile based on different states. But I think originally, as you said, most of these wrap-ups that I at least saw when I first came on and started training were for the likes of the MTA or huge municipalities that were doing it more for the control purposes, which again, as you point out, I think control is the operative word in owner-controlled insurance program and contractor-controlled insurance program.

Josh Rogove (05:27):
But simple answer is, you needed a project over 100 million in most states. You also had to have a sponsor that was willing to understand that they were going to have a high deductible. They were going to have a loss-sensitive program, potential words like collateral, and there was more work that went into it. But with the right brokers and the right partners, there were definitely enough opportunities out there, not the infinite amount of opportunities that exist today.

Danette Beck (05:51):
Yeah. I remember that shift when in my earlier days of putting these programs together, 100 million was the absolute minimum and it needed to really be a little bit more. And what's interesting to me today, and we'll talk about it in a couple minutes, is that, like 100 million, yes, you can get certain structures together, but really, for some projects, they need to be much larger than that and the builds are much larger. I mean, we just look at the number of mega projects that are out there today. It is astounding of the difference between project build costs back in the day and project build costs that are here now.

Josh Rogove (06:23):
Can I call out to that just real quick on that? Its just this current wave of these data centers, right? You look at a budget on some of these projects, almost 60% of the cost that you are seeing is actually equipment. So, even by us pegging to $100 million number, I think really what we were all trying to do is find around $20 million worth of payroll that spun out off of that. But, again, to your point, the numbers are, they're unbelievable...like, if I said back in 2001, we'd be working on four or five billion dollar wrap-ups...

Danette Beck (06:54):
You'd think you're crazy...

Josh Rogove (06:54):
Yeah, crazy. Crazy.

Danette Beck (06:56):
I know, and that actually goes into something else that I wanted to point out, because you mentioned kind of the technical side of the underwriting, and Ben, I'm pretty sure that you're going to nod your head at this one, is that back in the day, I remember I had six markets. That's all I had. I had six markets that I could go to, and so I had to be really technical about understanding the projects of themselves and making sure I had a great submission, because that's all I had. I had to convince one or two of them that this was a project where the controls were going to be in place, and that the outcomes were going to be better than leaving it up to happenstance or a traditional construction contract structure in order to have a successful project. And really, that's where I got intimately involved with making sure the administration was going well, because that is where I think the rubber hits the road, because once a program is put in place, it's got to be managed well in order for those outcomes to be achieved.

Danette Beck (07:49):
And so, I want to switch over now into the administration and underwriting. And so, Ben, I'm going to come to you because I want to talk about what's really happening once the submission comes in, what you are looking at, and then also what your earlier days when you were on the administration side. So, you know, I always like to say enrollment and certificates tell you who is covered, but good administration helps you understand what is happening on the job site. And so, let's go admin first, and then I'll go underwriting, because I think you've got a pretty strong opinion about both. But what did you learn about the role of administration after you got closer to it?

Ben Slocum (08:24):
Yeah, administration, you know, you kind of think you're just checking a box, but it is very important to know who's enrolled. I know when I first started doing the admin, the sponsors were excited because we would give them enrollment lists so they knew exactly who was on their project, who's been enrolled, when they started on the project. If they're not doing a wrap-up, they might not even know who's on their project at that time. They want to know how much labor they have in the wrap-up, if you're including the copy, you have to report payroll each month so you know exactly how much labor they actually have on site, how many hours, how much payroll they're reporting. So the information is just much better if there's an wrap-up and it is... The admin is doing their job correctly.

Danette Beck (09:12):
I mean there is like no black box? Right.

Ben Slocum (09:12):
No black box. Yeah, I would say as an underwriter, the thing that keeps you up at night is when you get that claim and they're like, "Oh, we forgot to enroll this guy." So if your admin's not active and you're not asking the right questions and the sponsor's not participating how they should be, that's the kind of thing that could happen. And when someone has a claim and they're supposed to be enrolled in a wrap-up, but they're not, it can cause major problems.

Danette Beck (09:39):
Oh, I completely agree with that. And I also completely agree with the more detail, the better I talked about that you had to have the technical side. And so I would tell the buyers or the sponsors that I was putting together programs when we would do our pre-submission meeting about, okay, here's our strategy, here's what we're going to be doing, I'd walk through the underwriting process, literally chapter and verse, going through having a risk engineering visit, walking through the interviews of the underwriting team and the claims team and the risk engineering teams. But one of the things that I always tell them, and I was like, "Look, the underwriters are going to underwrite to uncertainty, and the more gray area that you don't have in information available, the more that they're going to price for those financial assumptions." Would you agree with that? Like, for you, how does the quality of information you receive change the way you assess a project?

Ben Slocum (10:32):
Yeah, it is very important. And I'm not saying brokers are getting lazy now, but there are so many markets that sometimes will get submissions and it won't include a labor allocation or like, "How are we supposed to price this up? We don't even know what labor is going to go into this project." And like Josh said about the data centers where it may be 60% equipment, and traditionally you aim for 20% labor to CB on these, but now there's so many different projects that it can be 10% or equipment might be outside the OSIP, so maybe it's 40%. So that could really swing the pricing, not knowing exactly how much labor is in that construction value. So when you have a really good deal and you understand what the project is, what are we covering, it can make pricing much easier for us. If we don't know exactly what's going to happen on this project, we're going to have to price in that uncertainty.

Josh Rogove (11:31):
And Danette, if I can jump in here too, one of my initial attractions to joining CR Solutions after sitting behind the underwriting desk was exactly to Ben's point. Back then, the industry kind of said, "On average, payroll to construction value ratio is 20%." But when I would see a CR Solutions labor allocation, that maybe it averaged out that way, but concrete is going to spin off different payroll than carpentry or steel erection. And I think it's important for the underwriter today or even on a program that is adjustable on construction value, workers' comp payroll is the basis that you guys need to underwrite off of. So having a clear picture going in upfront will essentially allow you to underwrite the risk better, generate the right premiums for it, and then as you mentioned earlier, because each risk is underwritten based on similar like in kind in similar jurisdiction, the underwriters can only look at relevant loss runs or loss experience compared to it. So it's very important for the carrier to get accurate data in and then make sure that you finalize that information as well.

Ben Slocum (12:34):
I would say on the loss experience, sometimes the brokers will send us all these loss runs, but they don't have the corresponding exposure. So, you know, what can we do with that? Was it 200 billion in CB or was it a billion? We don't know. So we kind of need both to make a proper decision.

Danette Beck (12:52):
Right. Which will all help in the pricing structure, which is one of the components of why you would want to do a, a program. And more so, I would think, on a two-line program, because of the workers' compensation component to it, you know, I talked about... Well, Josh, actually, you talked about control. I also think other, like a mini C of an OSIP or CSIP is coverage. And so I do know that as the evolution of these projects started happening, it really started expanding to the types of projects, like real estate developers, and they were not necessarily set up to manage workers' compensation claims. And some of it was just staffing. And they're like, "Look, we've got a brand reputation that we want to control and coverage." And sometimes it was residential, sometimes it was not. But I did see the onset of some of these larger developments that were coming that they were starting to be more interested in GL-only programs.

Danette Beck (13:43):
And I know we have been talking about comp, but I do want to switch and spend just a couple minutes talking about the shift and structure from a GL-only program. And so I've got a question for both of you. And my question is, do you think geo-only wrap-ups are making wrap-ups more accessible? Or do you think... This may be a little provocative, but do you think it's easier for sponsors to underestimate the value of including workers' compensation? Not to take sides. I am admittedly a proponent of all types of project solutions. I think, you know, we should put together the best project structure for the client, but I'd be interested in hearing y'alls take on that.

Josh Rogove (14:26):
Yeah. I think it's good for the wrap-up product because it certainly has reduced the barriers to entry. There's more opportunity now to access it. The way that it... most of the time, these GL-onlys are accessed through wholesalers. It is a lot easier for retailers that don't have proper appointments to get these things placed. However, I think the ease of access has somewhat diluted the product, where often sometimes it is being sold for the wrong reasons, misrepresented as far as this is not a set it and forget it product for a project.

Danette Beck (14:57):
It is not a set it and forget it. That is for sure.

Josh Rogove (14:59):
No. It's something that if you have... yes, these things can become profitable if there is a cultural shift, if everyone involved understands what's needed to essentially accomplish that goal. So as a wrap-up administrator, I love it. There's more wrap-ups for us to work on. But with that, you'd have to sift through a lot more deals to find the quality deals.

Danette Beck (15:21):
Yeah. Ben, what do you think?

Ben Slocum (15:23):
Yeah, I agree 100%. And it's, you know, what is a sponsor trying to accomplish? Are they just trying to check a box that we have coverage, we have completed ops for 8, 10 years, whatever the statute reposes. So I hope wrap-ups do not just turn into checking a box. It is what are we trying to accomplish? What are we trying to control? What is our philosophy? Are we in this for the long-term? Are we the LLC that's just trying to flip this in five years? Are we PE back? So there's a lot of considerations. I hope everyone looking at a wrap-up tries to figure out what they are trying to accomplish.

Danette Beck (15:58):
I completely agree with that wholeheartedly. I'm going to go back to something I said at the beginning, which it's not a way to place insurance. It is a decision about how to manage and organize risk. In fact, funny story as an aside, you never want to get deposed when you are in the business, but I would say you haven't been in the business long enough until you've been deposed at least at one point. And it was on a wrap-up project, and I was a PMK, a person most knowledgeable about the situation, was not part of the deposition, but they were getting information from me. And the opposing attorney kept talking about an OCIP policy and was trying to ask questions about this figment of its imagination. And I had to take our attorney outside and was like, "I know you wanted me to say yes, no, I don't know." That is like the basis of answering questions in a depo.

Danette Beck (16:42):
And I said, "I have to explain that a wrap-up is, it's a way to organize project risk by procuring a centralized policy for general ability workers' compensation in excess. But there is no such thing as a wrap-up policy." And so I agree with you, Ben, that I think that for those listening, I encourage you to explore these types of solutions for project risk management, because it's a way to organize your risk in a manner, not just a checking of the box that and what Joshua, what you said, I'm taking both of you, that it's a set it and forget it that if you buy this, they will come and the results will be there. This is an investment in not only your project outcomes, but really a shift in risk philosophy, I believe.

Josh Rogove (17:27):
One other comment, and then I just wanted to add to, you had also asked a question about are projects going GL only that maybe shouldn't like on the larger side. I do think, as I mentioned, it's diluting the value of the product maybe for some projects that shouldn't have gone rap up and they're being sold incorrectly. But I am also seeing, unfortunately for the business, there are some mega projects out there with significant payroll where the GL only become so easy to place that sponsor's not really interested in exploring the comp.

Danette Beck (17:58):
Which I think is fair because I'm also, I'll say it again, matching the philosophy of the sponsor with the outcomes. I think in some instances, and I'll throw this out there for consideration, is that for a little bit of money, of investment and resources, you can capture that workers' compensation line of business that would help facilitate a better outcome for all parties. But it does take some time to set it up, but I think that the results are there. I've been a part of them and have seen it. I do hope and echo Ben's statement that I do hope we do go back to let's evaluate all types and let's start adding in what those costs could be and then really truly evaluating what project risk management should be. My two cents.

Josh Rogove (18:44):
Amen.

Danette Beck (18:44):
All right. I'm going to bring this around to a full circle because we've talked about access and we have talked about structures, but I want to finalize this because I feel like I've got two experts on this podcast. And so I want to drive this home on, we may think that access is no longer now a differentiator. So what do you think expertise looks like in practice? And Ben, I'm going to come to you first.

Ben Slocum (19:08):
Interestingly enough, we just had an OSIP presentation to a sponsor and we usually, you know, before COVID, that was very commonplace. The carriers would go, their loss control guy, their claims guy would go. Ever since COVID, things have kind of gone away. So I think it's important on the carrier MGU side to bring that expertise with all the facets; loss control, claims, underwriting, an unified group of experts on the subject matter, especially if you're including the comp, the sponsor's going to have a large retention and they're going to have a lot of exposure. So if you're not bringing the experts that know everything about your project, about the process, you're really leaving yourself pretty exposed there. So I think if you're just buying coverage to buy coverage and you think you're going to make money because the performance says so, if you are not bringing the right experts to the table, you're really leaving yourself exposed.

Danette Beck (20:06):
I would agree with that. I am going to add in one comment in addition to the underwriting, you know, I have also seen the greater importance on trend analysis and utilizing actuarial disciplines, not only for pricing strategies, but also for being proactive on how to identify risks that are maybe lurking in your projects that you may not have seen on past ones, but they can help you in the future. So completely agree with how a sponsor should be evaluating not only their underwriting partners, but also their broker partners of having that expertise and their administration partners, which Josh, that is you, so I'm going to come to you about expertise, in this practice.

Josh Rogove (20:47):
Yeah, I think to echo what both of you guys are saying, I think expertise is key and I would say I would even drill that down to expertise to the individual on your brokerage team, on your admin team that's actually handling it. So it's not so much focusing on a flag that says, "This flag has done X amount of wrap-ups." These things can get detail oriented. They have different dynamics in different states. So for instance, on a GL only, you'd want to place it with a wholesaler that has experience in that type of state. As far as the administrator, what we try to do is we understand at the end of the day, this insurance decision is part of their operations, but the motivation of the sponsor is to build this project on time and on budget. So our job is to essentially not be an impediment to that process, it is to fit seamlessly within it.

Josh Rogove (21:36):
So try to fit within their procurement process and really be there more for transparency so that the sponsor understands how the project is performing, how exposures are to date, what types of losses you're seeing, what types of injuries are you seeing. Again, these things, they can become profitable, but it's not set it and forget it. And the information that we could bring forward throughout the course of a construction project, you can continue to hone in that profit, maximize that profit, or reduce maybe some poor exposures or change your position if you start identifying issues that you can address in the middle of a project.

Danette Beck (22:12):
No, I couldn't agree with you both. And the themes that I just heard is that wrap-ups are moving more from a specialized solution to a strategic option for a broader range of these project sponsors. And I will say equally importantly is that administration's more than enrollment inserts. It can be a source of project risk intelligence. And then finally, the access is definitely opening more doors now, but it's the expertise that determines what happens next on these projects. And I know that we could probably spend a couple hours talking about this. In fact, I think we will probably have both of you back on to do another series because I just think that this is such an important topic with the mega projects that we're having now and the size of the projects getting larger of a better way to build the mousetrap. It exists and I'm excited that the two of you agreed to be on this podcast with me today.

Danette Beck (23:01):
So before we leave, Josh, I want to give you a couple seconds. If someone wants to get in touch with you, tell us. How do we find you?

Josh Rogove (23:07):
So our website is www.c-r-solutions.com. You can click the contact us there. I'd also recommend to any listeners, we have quite a bit of free content out there education-wise. Again, our job is to educate people on wrap-ups, whether or not they should go or not go. So we have a lot of information out there on the website for that. Follow us on LinkedIn. We're always pushing out new posts. My phone number is 646-483-1199. And my email address is Joshua.Rogoveve@c-r-solutions.com and reach out at any time. Happy to talk wrap-ups with anybody. Thank you for that.

Danette Beck (23:52):
Wow you just put your phone number out on the interwebs. <laugh>

Josh Rogove (23:55):
All my information's is current.

Ben Slocum (23:57):
Hope you have the spam blocker. <laugh>

Danette Beck (23:59):
All right. So I will give the plug for us, Ben. I will make it a little bit more simplified. You can go to our website at www.astrusins.com. And you can email us at info@astrusins.com and one of our team members will get back to you right away. Thank you both. Again, this is super fun. Love talking about wrap-ups and the kind of cool projects that we've been able to work on throughout our years and looking forward to continuing the conversation. Thanks everyone. We'll talk to you next time on the next Astrus Advantage Podcast.

Closing (24:35):
Thank you for tuning into the Astrus Advantage Podcast. To learn more about Astrus and access additional insights, visit astrusins.com. Be sure to subscribe and join us next time as we continue the conversation.