Agenda Item No 5

The Vale of Glamorgan Council

Cabinet Meeting 17th September 2018

Report of the Leader

Council Insurance Review April 2018 - March 2019

Purpose of the Report

To advise Cabinet that the Council's insurance policies will need to be retendered during 2018 / 2019 due to the expiration of Long Term Agreements and to outline and agree the process that will be followed in carrying out the tenders.

Recommendations

That Cabinet :

Notes the position regarding the Council's insurances.
Authorises the Head of Finance to commence tendering procedures for the insurance services outlined in this report.
Approves delegated authority for the Head of Finance / Section 151 Officer in consultation with the Managing Director and Leader to accept and award contracts for these insurance services for a period of three years.
Authorises the Monitoring Officer / Head of Legal and Democratic Services to agree the terms of and execute contracts with successful providers.

Reasons for the Recommendations

To keep Cabinet informed and apprised of insurance issues.
To commence a timely tendering process for the provision of insurance cover.

3-4. To have an appropriate contract in place for the supply of insurance cover.

Background

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
Motor/Road Risks
Property (Public Buildings/Schools/Housing Stock)
Contract Works Cover
Professional Indemnity Insurance
Personal Accident/Travel
Off Site Activities/Travel (Schools and Youth Services)
Fidelity Guarantee (Employee Dishonesty)
Computer Mainframes
Engineer Inspection/Insurance (Lifts)
PTA Liability cover
Trustees Liability (Councillors)
Leaseholder's/Mortgaged Property
Resident's Association Schemes
Contribution to the Community Association Schemes

Insurance Premium Pressures

The UK government has amended the large claims discount rate on personal injury claims from 2.5% to minus 0.75%. When victims of life-changing injuries accept lump sum compensation payments, the actual amount they receive is adjusted according to the interest they can expect to earn by investing it. The law makes it clear that claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life. Compensation awards using the rate should put the claimant in the same financial position had they not been injured, including loss of future earnings and care costs. Within the market this has resulted in a 20% increase in premium.
A Supreme Court Judgment has made local authorities vicariously liable for the actions of foster parents. As a result the local authority is liable for the actions of foster parents regardless of whether the authority has been negligent.
Insurance Premium Tax is currently 12% and unlike Value Added Tax is not recoverable.

Grenfell Effect

The horrific events of June 2017 will be long lasting for those directly and indirectly involved in the tragedy. There will also be an impact on the public sector insurance market. The insurer of the Grenfell tower is also the property insurer for the Vale of Glamorgan Council. They honoured the long term agreement for the April 2018 renewal. However, all insurers reinsure risks and it is documented in the insurance press that the majority of the losses will have to be met by reinsurers. Reinsurance rates are likely to be forced upwards as the true costs of the claims arising out of the disaster are presented.

Relevant Issues and Options

The Council is striving to cut costs wherever possible and has to endeavour to make savings when external pressures are forcing the price of public sector insurance upwards. A number of different options have been recently considered.
The Vale of Glamorgan Council along with a number of other councils in England and Wales, has explored 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 premiums) that cannot be borne in-house. However, as a result of a Court of Appeal ruling in the case of the London Authorities Mutual Ltd. that the London councils were acting ultra vires, this work has had to be discontinued.
The Council's insurance policies (other than property) were tendered for the 2014/15 financial year and were placed on a five year long term agreement. The Council's property insurance was retendered for the 2016/17 financial year on a three year long term agreement with the potential to extend the contract for a further two years. The insurance policies other than property will have to be retendered during the current financial year and a decision will have to be made based upon the renewal premium offered by the incumbent insurer.
To undertake this tender process the Council will use the National Procurement Service's (NPS) Insurance Framework and the process of the tender will be run by the Council's insurance broker Marsh UK Ltd. The Council will take advice from Marsh as to whether the renewal premium offered by the property insurer represents value for money.
The specification for the contract will have to be drawn up by Council officers, taking account of the Council's appetite for risk in terms of how much self-insured risk the council is prepare to bear (excess). The higher the excess the lower the premium and tax burden yet the higher the financial exposure should claims be received.
A variety of excess scenarios will be requested within the tender specification and on the basis of the returns, a decision on the most advantageous tender can be assessed, based upon the claims history of the Council.
It is proposed to maintain the current insurance arrangements until the expiration of the current long term agreements

Resource Implications (Financial and Employment)

In retendering for insurance cover, the level of risk to be taken will need to be assessed which will impact on the likely level of premiums required.

Sustainability and Climate Change Implications

Not applicable to this report

Legal Implications (to Include Human Rights Implications)

It is a legal requirement the Council to have insurance cover in place to cover a range of issues, including cover for vehicles, employers and third party liability.

Crime and Disorder Implications

The insurance team actively explores ways to combat fraud.

Equal Opportunities Implications (to include Welsh Language issues)

There are no equal opportunity implications as a direct result of this report.

Corporate/Service Objectives

The maintenance of appropriate insurance cover is essential and relates to the various integrated planning actions as set out in the Council's Corporate Plan.

Policy Framework and Budget

This report is within the Policy Framework and a matter for decision by Cabinet.

Consultation (including Ward Member Consultation)

None applicable to this report

Relevant Scrutiny Committee

Corporate Performance and Resources

Background Papers;

None

Contact Officer:

Head of Finance

Officers Consulted

None

Responsible Officer:

Rob Thomas, Managing Director