Scrutiny: Insurance
Background Report
1.Introduction
1.1This scrutiny is intended to provide members with an understanding of the insurance management function, the importance of identifying and managing not only strategic, but operationalrisk.
1.2In particular the scrutiny will be addressing the following questions:
(1) What is the responsibility of the Insurance Section and how doesit function?
(2) What are the expectations of underwriters when HCC approaches the insurance market and how important is Hertfordshire’s risk profile?
(3) How can the Insurance Section raise the importance of earlynotification of changes within Hertfordshire County Council’s departments?
(4) How does HCC manage any legislative changes and cost demands when defending claims?
(5) How can the Insurance Section support Hertfordshire County Council departments in the identification of strategic and operational risks?
2.What is the responsibility of the Insurance Section and how doesit function?
2.1The insurance team is a specialisedteam that sits within the Specialist Accounting area in finance. Their specific role is to:
- Identify, protect the risks and assets owned or associated with HCC
- Advise upon the options for risk transfer including
Insurance coverage with external insurers
Potential self-insurance
Contract review
- Ensure the appropriate protections are in place to ensurethat business continuity plans can be financed.
- Statutory obligation to insure as a local authority
2.2One of the key activities of the service includes marketing HCC’s profile to external underwriters, by preparing an insurance specification on a 3 to 5 year cycle.We need to appoint a broker, who acts as an intermediary with the underwriters; this appointment is currently with AON.
2.3Managing all claims received against HCC including making commercial decisions on the outcome of each settled claim and to balance the reputational risk/legal costs against the chances of defence. This includes but is not limited to:
- Liaising with council departments to collate evidence in defence of claims
- Co-ordinating and preparing court documents, including
attendance at court and appearing as witnesses if applicable.
- Monitoring and auditing of claims managed by external providers.
2.4Agreeing and managing all Service Level Agreements, held with external suppliers.
2.5Giving insurance technical advice to all departments, including major procurements, contracts, shared services, and limited companies.
2.6Preparing and recording quality claims information on the CS Stars claims handling system so that appropriate claims information can be made available to underwriters as well as to departments. This is also provided to enable a bi-annual Actuary Report, required for budgeting purposes.
2.7Facilitating policy coversand claims services to schools & otherpotential outsourced functions that may not have the knowledge or access to economical insurance terms.
2.8The insurance team is made up of 10 experienced staff, including:
- Insurance Manager
- Assistant Insurance Manager
- Senior Claims Handler
- 6 ClaimHandlers covering motor, liability, and property
- 1 Support Assistant
- Professional qualifications or the appropriate insurance experience are vital in ensuring the appropriate commercial decisions are made to protect HCC.
2.9Currently we manage on average 3000 claims a year, covering liability, motor and property.
3.0What are the expectations of underwriters when HCC approach the insurance market and how important is Hertfordshire’s risk profile?
3.1The previous section talked about the day to day function of the insurance team. As with any form of activity there will always be a risk, and these risks need to be managed. This section will deal with the expectation of underwriters within the terms of the current insurance contract.
3.2Currently there are only three insurers who are willing to quote for local government insurance for Counties, Metropolitan, Boroughs and Unitaries. This is due to a number of factors but in essence it is due to the potential large claims of the two main risk areas being education (fire claims) and Social Care (abuse claims). These two risks can run into millions of pounds.
3.3Underwriters will always rely on the quality of information provided within the contract specification.
(1)Full 5 year claims history
(2)Confirmation of HCC’s statutory functions
(3)Full risk profile to include strategic and operational risks
(4)Service level agreements.
(5)Levels of self-insurance HCC would be prepared to take.
This is reviewed on an annual basis as well.
3.4Currently we carry the following arrangements:
- Public liability – excess £100,000 each and every claim
- Employers liability – excess £150,000 each and every claim
- Property – Fire policy- excess £100,000 each and every claim.
- Motor
Commercial vehicles an excess of £100,000
Leased vehicles are self-insured for own damage but are insured for third party risks.
This is reviewed on an annual basis and is balanced against premium/self insurance to ensure best value is achieved.
3.5Underwriters whilst acknowledging our strategic risks are especially interested in the identification of operational risks and importantly howthese are managed. Changes in activity/process can increase or decrease the risk of claims.
3.6Hertfordshire has recently taken the lead with six other Counties in approaching the insurance market to see if we could encourage further competition.We held a market testing day in which we asked underwriters from various insurers, what were their expectations.
The results were as follows:
- More openness in communication
- Quality claims data MUST be available.
- Give new underwriters the option to meet key players
if required, this can be from members to senior management level.
- A total commitment to the management of strategic and operational risk.
- Early communication with underwriters.
4. How can the Insurance Section raise the importance of early notification of changes within HertfordshireCountyCouncil departments?
4.1The overall responsibility of the insurance contract is held withthe insurance team, and therefore they have aduty to report any changes to the original contract.
4.2If there are planned changes to the original service provisionwe need to be made aware of these as this could seriously impact the chosen insurers ability to provide cover, not just now but possibly in the future.
4.3The insurance teamrely on:
- Reviewing the Contract Register
- Contact being made from individual departments.
- Senior Management advice.
- Monitoring Strategic Risk Register.
4.4The management of change is the responsibility of each individual department, as is the identification of any potential risks.
4.5With the new challenges of local authorities, the requirements of the local agenda and the encouragement of more partnership working,one of the questions underwriters are now requesting is a list of the new partnership arrangements. I am aware that some authorities have now set up a central register.
.
5. How does HCC manage any legislative changes and cost demands when defending claims?
5.1The insurance team currently manage all claims made against HCC.Claim costs can increase for varying reasons, severe weather, natural disasters, but also due to any legislative decisions made in court.
To support the claims handling team when this happens appropriate training is givenby:
- Attendance at conferences and courses held by Solicitors.
- Chartered Insurance Institute Membership.
- Liability e-mail updates.
- Networking with other Authorities.
- Motor – reduction of numbers, contracting out and collaboration with other authorities.
5.2Claim costs have increased considerably over the last few years especially with the “No Win – No Fee” agreements.
5.3The need to balance the cost of defending a case and the risk of losing are always borne in mind. Particularly, as claimants operate on a no win/no fee scheme and after the event insurance premiums are staged at different levels, which can increase trial costs considerably. The premiums often exceed the costs of defending the claim and claimants also recover 100pct uplift if successful.
5.4Judicial decisions can happen at anytime and this can affect the claims process, however a recent equality of arms review in defending claims has been carried out by Lord Justice Jackson. The new Legal Services Act has received Royal Assent and this provides for amongst other things:
- The non-recoverability of After the Event Insurance
- Success fees not being based on costs but as a percentage of the damages awarded.
For example:
Currently
-Damages £10,000: costs £10,000 plus 100 pct uplift = £20,000
After the event insurance premium £8,000.
Total cost of claim = £38,000.
New system
-Damages £10,100 (plus 10pct to cover success fees):
Costs £10,000, no percentage increase on costs, no ATE.
Total £20,100.
5.5 The government have recognised the huge sums awarded for costs and ATE premiums are paid for from the public purse. These changes will automatically increase cost savings. There is no date set for theimplementation of the legislation but it is likely to be by the early part of
2013.
6.0How can the Insurance Section support HertfordshireCounty Council departments in the identification of strategic and operational risks?
6.1We as a team have recognised the need to provide quality information.
6.2We have recently upgraded our CS Stars claims handling system and
this will allow us to produce more detailed information at various levels, so that the strategic risks can be identified as well as at operational level.
6.3Additional use of the claims analysis can help identify patterns to better advise departments directly of their losses.
7.0SUMMARY
7.1The insurance team play a key role in managing the statutory, financial and reputational risks of the authority. We maintain an essential working relationship with not only HCC departments but with the contractualrequirements of our external underwriters
7.2We use professional expertise in making liability decisions on all claims, regularly monitoring and managing costs.
7.3Improvements to our business practices are regularly reviewed and theproduction of quality claims information will support departmental heads in mitigatingtheir strategic and operational risks.
7.4Consider the adoption of a centralised partnership register.
Pauline Tinnelly
Insurance Manager
14 June 2012.
Please find attached – definition of Liability policies.
120629 05 Scrutiny Report