Agenda Item No
The Vale of Glamorgan Council
Scrutiny Committee (Corporate Resources): 24th April 2012
Report of the Director of Finance, ICT and Property
Council Insurance Review 2011/12
Purpose of the Report
1. To advise the Scrutiny Committee of the progress made in reviewing the Council's insurances following a recommendation of the Task & Finish Group.
1. That Scrutiny Committee notes the position regarding the Council's insurances and the further actions proposed.
Reason for the Recommendation
1. To keep the Scrutiny Committee informed.
2. Recommendation 9 of the Scrutiny Committee’s Task & Finish Group set up to examine the Impact of the Economic Downturn on the Council and its Services was to ‘Review insurances within the Council to consider ways the Council can reduce the cost’.
3. The Council manages insurance risk through its own internal fund (the Insurance Fund) and by paying premiums to external insurers where the financial consequences of the risks cannot be borne in-house. Services are recharged to recover the attendant costs of insurance based upon a number of factors, including claims experience. The following external insurance policies are maintained:
Public/Employers/Officials Indemnity Insurance
Property (Public Buildings/Schools/Housing Stock)
Contract Works Cover
Professional Indemnity Insurance
Off Site Activities/Travel (Schools and Youth Services)
Fidelity Guarantee (Employee Dishonesty)
Engineer Inspection/Insurance (Lifts)
PTA Liability cover
Trustees Liability (Councillors)
Resident’s Association Schemes
Contribution to the Community Association Schemes
4. Recent major catastrophic losses in Japan, New Zealand (earthquakes) and Australia (floods) are impacting upon the global insurance and re-insurance market; with insurers looking to offset their losses by way of increased insurance premiums.
5. Aside from these major losses the insurance market has seen a trend of increasing premiums, particularly in the past three years, when the Council’s insurances were last tendered. The private motor insurance market is used as an indicator of the trend that the rest of the market will follow. In the year September 2010 – September 2011 comprehensive motor policies increased by an average of 12.3% (Zurich Insurance).
6. The Council is, therefore, looking to reduce its spend on insurance at a time when market rates are increasing. Concerns have been raised in the insurance press that as pressures mount on public finances then claims are likely to increase as maintenance budgets are reduced. For a public body, the Council carries modest levels of insurance excess (i.e. the amount of each claim that the Council has to bear itself). This is generally £75,000, although smaller excesses apply to some property risks.
Relevant Issues and Options
7. In the last financial year (2011/12), the Council's property insurer broke the long term agreement (LTA) due to the Council’s poor claims history, particularly in schools. A revised rate was offered which was unacceptable to the Council and a tender process was subsequently undertaken which realised a cost avoidance of £1m over the five year term (i.e. the new rate when compared with the offered rate).
8. At the end of the 2011 financial year, the Council's Employer's and Public Liability insurance policies were under review as the three year LTA had come to an end. Insurers had the option to offer a further two years cover, and had initially proposed revised terms with an increase in premium in line with market rates of 25%. This was deemed by the Council’s officers to be too high and was negotiated down to a 10% increase in premium. This 10% increase represents better terms than was offered by the nearest competitor at the last tender process when the insurance market was more favourable and the Council's claims history was stronger.
Alternative Risk Transfer (ART)
9. The Vale of Glamorgan Council along with a number of other councils in England and Wales has been continuing to explore the possibility of entering into a mutual fund agreement. This would have the effect of providing an alternative vehicle to the existing external insurance companies for transferring the insurance risks (and payment of premiums) that cannot be borne in-house. However, the Court of Appeal previously ruled in the case of the London Authorities Mutual Ltd. that the London councils were acting ultra vires.
10. The UK government has sought by way of the Localism Act to give a general power of competence to councils in England. Whether or not that same power will be granted by the Welsh Government (WG) to councils in Wales as yet remains unclear.
11. As the use of an ART mechanism is currently unavailable, risk management measures at an operational level have been introduced.
12. The majority of claims received by the Vale of Glamorgan Council arise from incidents upon the highway.
13. The Council’s Highways Department is currently reassessing repair response times to defects identified in the highway network. The current timescale for repairs of within 15 working days has been found to be unachievable in some cases and as such the Council has been found liable for claims where it had not been meeting this standard. This is largely due to the number of defects being identified and the available resource to deal with them.
14. The Senior Highways Maintenance Officer has been carrying out research with other Welsh councils to establish the level of service provided by their respective highways departments. Initial information is that repair times vary greatly from council to council, with most being greater than ours, and some extending into months. On completion of the research it is proposed to bring the Council's repair response times more in line with other councils. The Highways and Engineering Department has also introduced a new software system which allows for better reporting of defects and which highlights where routine inspections have been missed.
15. Training has been delivered to the Highways Inspectors by the Council's external solicitors on what to expect when cross examined in Court to enable robust defences of the Council's Highway's Policy. The Council has recently successfully defended a number of cases brought against them in Court and this has been largely due to the actions of the Councils Highways Inspectors and Senior Highways Staff.
16. The Association of British Insurers (ABI) estimates that the annual cost of insurance fraud is approximately £2bn. The Council has encouraged a different approach to dealing with claims with its external claims handlers, such as pressing for further details of accidents and thorough reviews of medical notes before settling injury claims. Whilst a more robust approach to claims handling may lead to complaints, there is, however, a duty upon the claimant to evidence their claim.
17. The Council carries substantial excesses for property claims, although they are not directly seen by the departments as the insurance fund is maintained through a system of corporate recharges. The introduction of an internal excess of £250 has been introduced on contents/electronic all risk claims in an attempt to promote more care being taken by employees and staff.
Schools Holiday Site Management Plans
18. Schools have been encouraged to take a more active role in the risk management of their buildings. Communications have been sent out to schools asking them to consider ways of minimising risks arising from cold weather spells, such as isolating the water supply in demountables/toilet blocks so that if a burst pipe occurred then the damage would be minimal, or leaving the heating on low.
19. Schools traditionally use the holidays to carry out maintenance work, they have been encouraged not to store combustible materials/skips close to buildings as arsonists will use these items as sources of ignition.
20. Many of these suggestions were already being followed by some of the secondary schools who have full-time site managers.
21. Where a theft of metal has taken place the Council looks to replace the stolen items with non-metal substitute materials. In cases of lead theft, ubi-flex is used and the Council’s Building Compliance Manager is exploring the use of plastic pipe work in heating systems that are being replaced in the Council’s housing stock.
22. The Council’s Risk and Insurance Officer has liaised with the Police through the Safer Vale Partnership, leaflets have been distributed to schools and posters provided encouraging the public to contact the police should any unmarked commercial vehicles be on site out of school hours. Recent criminal activity in surrounding Councils and now in the Vale of Glamorgan Council has shown that the trend is now for copper piping theft within buildings.
Proposed Action Plan
23. The following constitute the main actions proposed in respect of the Council’s insurance arrangements:
Maintain the current insurance arrangements until the end of the current LTAs at the end of the 2013 financial year
For 2014 onwards consider whether the legal position has changed with regard ART.
At the end of the LTAs consider whether increased or decreased risk should be borne by the Council and what the premium/claims payment implications are.
Continue to promote low/no costs risk management measures.
Resource Implications (Financial and Employment and Climate Change, if appropriate)
24. As at 31st March 2011, the Council's in-house Insurance Fund stood at £4m. Payments of premiums to effect external insurance totals approximately £1m per annum..
Legal Implications (to Include Human Rights Implications)
25. Maintenance of a robust defence against insurance claims may involve the Council taking action through the Courts.
Crime and Disorder Implications
26. Co-ordination with bodies such as the Safer Vale Partnership and promoting an active campaign to minimise the risks of insurance fraud and theft will have a positive effect from a crime and disorder perspective.
Equal Opportunities Implications (to include Welsh Language issues)
27. There are no equal opportunity implications as a direct consequence of this report.
28. The maintenance of appropriate insurance cover is part of the Council’s Corporate Plan objective of Corporate Resources.
Policy Framework and Budget
29. This report is within the Policy Framework and Budget.
Consultation (including Ward Member Consultation)
30. Not applicable
Relevant Scrutiny Committee
31. Corporate Resources
Geraint Jones, Risk and Insurance Officer, 02920 673046
Operational Manager Highways
Sian Davies, Director of Finance, ICT & Property