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Agenda Item No

 

The Vale of Glamorgan Council

 

Cabinet Meeting: 13 January, 2014

 

Report of the Leader

 

Insurance Renewal Report 2014

 

Purpose of the Report

1.         To advise Cabinet that many of the Council’s Long Term Agreements for insurance are due to expire at the end of the financial year and are now being retendered.

2.         To seek delegated authority for the Managing Director in consultation with the Leader to award the contract for insurance renewals to the most economically advantageous tenderer.

Recommendations

1.         That the Managing Director be given delegated authority in consultation with the Leader to award the contract for the Council’s Long Term Agreements for Insurance to the most economically advantageous tenderer.

Reasons for the Recommendations

1.         To ensure the Council awards a contract that delivers value for money for the authority in respect of insurance risk, provides adequate insurance cover in order to protect its financial integrity in the event of a major incident occurring and ensures that day-to-day financial activities are protected from the potential effect of insurance claims.

 

Background

3.         The Council's long term agreements for insurance cover expire at the end of the 2013/14 financial year and as such the Managing Director and appropriate council officers must now consider the most appropriate insurance options for the Council.

4.         The Council manages insurance risk through its own internal fund (the Insurance Fund) and by paying premiums to external insurers where it is considered financially prudent that the financial consequences are not borne in-house. Organisations such as the Council enter into long term agreements for insurances as it provides certainty and insurers will offer discounted rates for longer term insurance arrangements.

5.         The Council’s Insurance Section is based within the Business Improvement Team and consists of one full time Risk & Insurance Officer and two part-time Assistants. The section makes use of insurance brokers and claims handlers to benefit from specialist knowledge and to cope with seasonal fluctuations in claims volumes.

6.         The Council recently carried out a tender for insurance brokerage using the Government Procurement Service's (GPS) Insurance Framework. An insurance broker provides a specialist service for dealing with the insurance market. By tendering for the insurance brokerage, savings on the annual fee of 62% (£8,069 per annum) were achieved without compromising the quality of service provision.

7.         Prior to carrying out the insurance brokerage tender, the Risk & Insurance Officer considered the possibility as to whether the Council could operate its insurance function without the need for an insurance broker. The brokerage fee for the Council is now £5,000 per annum and insurers pay 2.5% commission to the broker on placing the business, whilst the insurance company pays that fee to the broker it is the insured (the Council) that ultimately pays that commission through the insurance premium.

8.         The GPS framework allowed the option of direct purchasing of insurances without the use of a broker, however there was only one insurer that would "direct deal" and as such there would be no way of gauging whether value for money had been achieved as no competition would take place. As such to access the market the services of an insurance broker are required.

9.         As a term of using the GPS Framework for the brokerage arrangement, the Council has been advised that the insurance coverage tender process should be carried out using the same framework.

10.      This report sets out the proposed approach to the tendering process for the renewal of long term insurance provision for the Council.

Relevant Issues and Options

11.      As part of the Budget Review in 2012/13, Corporate Resources Scrutiny Committee received a report on the Insurance Review at the meeting of 24th April 2012.

12.      As per the recommendations of that report, the Risk and Insurance Officer has continued to promote low/no cost risk management measures and provides corporate support and advice to departments on mitigating risks. For example, a risk management memo was sent to schools on how to prepare for the recent Fire Service industrial action.

13.      The Corporate Resources Scrutiny report also indicated that the Council would maintain its existing agreements until the end of the contract term and at that time consider options for the 2014/15 financial year and beyond including whether increased or decreased risk should be considered.

Proposed Project Approach to the Insurance Renewal

14.      The procurement process for the insurance renewal project will use the Council’s project management toolkit to assist officers in the tender process.

15.      Marsh Ltd (the Council’s appointed insurance brokers) will undertake the mechanics of the tendering exercise in conjunction with the Council and in accordance with the GPS Framework and the Council’s Financial Standing Orders.

16.      It is proposed that the Insurances be tendered in three lots as follows:

 

Lot 1: Liability Insurances

The insurances within this lot generally carry a £75k policy excess.

Insurance Class

Description

Employers/Public Liability

To provide cover for accidents and injuries to staff (including elected members) and the public.

Motor Fleet

 

Insurance cover for the Council’s fleet of vehicles.

Fidelity Guarantee (a provision required by the Local Government Act)

 

 

To protect the council against employee dishonesty.

Officials Indemnity

To cover liabilities for duties arising under the 1972 Local Government Act such as planning.

Professional Indemnity

To provide cover for services provided in professional capacities, such as the Vale’s Legal Department carrying work for other Councils

 

Lot 2: Personal Accident and Equipment Insurances

 

Insurance Class

Description

Personal Accident and Travel for Schools

 

Cover for injuries and losses arising from sporting events and school trips.

Personal Accident and Travel for the Council

Cover for serious injury and travel such as Members’ twinning trips.

Personal Accident and Travel for the Youth Offending Service

Cover for injuries and losses arising from trips for Youth Offenders.

Lifts and Boilers, Inspections and Insurance

Statutory Inspections for lifting equipment and boilers.

Computer Mainframes

Specific cover for mainframes.

Leaseholder/Mortgaged Property Insurances

Buildings cover for ex-Council Flats where the Council remains the freeholder.

 

Lot 3: Miscellaneous Insurances

 

Insurance Class

Description

Motor Uninsured Losses (motor claims within the policy excess)

 

A policy to recover costs of non-fault motor claims that fall within the Council’s policy excess.

Commercial Craft

 

Barry Island Lifeboat.

 

17.      In categorising the insurances in this way the Council can, set the scoring mechanism specific to the types of insurances within the invitation to tender specification,

18.      It is proposed that the award criteria used for all lots be weighted 70% on price and 30% on quality.

19.      Within Lot 1 the quality score will focus on the claims handling processes provided by the insurer and/or their subcontractor. The majority of insurances that fall within Lot 1 are those that represent the public face of the Council and as such the emphasis on quality of claims handling is a priority. This will seek to protect the Council financially in terms of claims that do not need to be paid and ensure that this service is carried out in a professional and timely manner. Within Lot 2 the quality questions will be based around Service Level Agreements provided by the insurer. Lot 3 are small premium insurances where the Council does not wish to commit to long term agreements.

20.      Property Insurance and Contract Works (building projects) are subject to separate long term agreements which finish at the end of 2015/2016 and arrangements will be made at the appropriate time to retender for this provision.

21.      Tenders will be sought on a variety of different excess (the first part of the claim funded by the policyholder) levels. These scenarios will attract differing premiums; the higher the excess, the lower the premium and the opposite scenario for bearing a lower excess. It is proposed that different risk scenarios and modelling will then be carried out by the Risk & Insurance Officer based upon the claims history to assess the potential financial impact on the Council.

22.      The modelling will involve the Risk & Insurance Officer reviewing the Council’s claims history and, based upon the quotations provided, calculating the cost hypothetical cost of each financial year.

23.      Premium spend can be driven down by carrying larger excesses and appear to save the Council money. However, larger excesses mean higher financial risks for the Council. Premium spend prior to this renewal is circa £1.2m per annum, claims spend for the 2010/11 period (figures used for this period as the majority of the claims have been received) is approximately £1m. As such, it can be seen that premium represents 55% of the Insurance Fund’s liability and claims 45%. It is therefore essential to strike the right balance between insured and uninsured risk and the approach to the tender exercise described above seeks to achieve this.

Resource Implications (Financial and Employment)

24.      The proposed costs of insurance premiums in respect of Insurance are built into the Council’s budget proposals for the 2014/15 financial year.     

Sustainability and Climate Change Implications

25.      There are no sustainability and climate change implications.

Legal Implications (to Include Human Rights Implications)

26.      The procurement process will be carried out in accordance with the Council’s Financial Standing Orders.

Crime and Disorder Implications

27.      There are no direct Crime and Disorder Implications as a result of this report. 

Equal Opportunities Implications (to include Welsh Language issues)

28.      The tender process will be undertaken in accordance with OJEU requirements and the equal opportunity provisions contained therein. 

Corporate/Service Objectives

29.      It is essential that the Council has adequate Insurance coverage to enable both Corporate and Service objectives to be achieved.    

Policy Framework and Budget

30.      This is a matter for Executive decision. 

Consultation (including Ward Member Consultation)

31.      Not applicable. 

Relevant Scrutiny Committee

32.      Corporate Resources.

Background Papers

Scrutiny Committee (Corporate Resources) 24.04.12 Council Insurance Review

Scrutiny Committee (Corporate Resources) 24.01.11 The Impact of the Economic Downturn.

 

Contact Officer

Geraint Jones, Risk & Insurance Officer

 

Officers Consulted

Alan Jenkins, Head of Accountancy & Resource Management

Tom Bowring, Business Improvement Manager

 

Responsible Officer:

Sian Davies

Managing Director

 

 

 

 

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