Corporate Insurance update 2010

Report: 5
Date: 8 November 2010
By: Director of Resources on behalf of the Commissioner and the Treasurer

Summary

This report outlines the outcome of the 2010 insurance tender process, the extension to the insurance broker contract, movements/alterations to the various insurance reserves and also seeks approval to the insurance strategy going forward in to 2011.

A. Recommendations

That members

1. note the outcome of the tender and annual renewals for the insurance programme
2. note the extension of the Heath Lambert insurance broking contract for another 2 years, effective April 2011, under the existing contract conditions for the fee indicated in this report
3. agree to the renewal strategy for 2011 including the current position on helicopter insurance
4. agree to the continuation of the Personal Insurance Indemnity Policy
5. agree the transferring of premium savings to existing Reserves and the overall position on Reserves

B. Supporting information

1. Insurance Renewals for 2010 - Heath Lambert, the MPA’s insurance brokers, have completed the renewal and tender process for the main classes of insurance, with effect from 1 October 2010 (overseen and agreed by MPS Procurement). The outcome of which, is summarised in the Exempt Appendix. Savings on last year’s premiums amounts to £642,000. The results of this year’s process, confirms that the insurance strategy is sound and continues to deliver benefits in both cover and cost.

2. Insurance Broker contract - Following a competitive tendering exercise, this contract was let to Heath Lambert Limited for a period of 3 years with a 2 year extension option, effective 1 April 2008. A performance framework matrix has been scored and completed with the outcome confirming that the performance has been at an acceptable level. The level of fee quoted for the extension (refer to the Exempt Appendix) is considered acceptable in the current insurance broking chargeable environment and in conjunction with MPS procurement) the contract has been extended for a further 2 years.

3. Insurance Strategy for 2011 - The MPA will continue to purchase catastrophe based insurance as this equates to the optimum Value for Money option. The extension of the current insurance broker contract should help maintain an element of continuity and relationship building across the insurance market. The property insurance policies will be re-tendered in 2011. The existing contract is a 3 year contract with an option to extend for a further 2 years. The 3 year period ends in October 2011 and with evidence of increasing competition in the marketplace and on advice from Brokers, the 2 year option to extend will not be taken up and this policy will be re-tendered. Also, there will be a review of alternative ways of purchasing property terrorism cover. Working in partnership with Insurers ensures that the potential changing risk profile of the MPS will continue to be effectively managed, ensuring the risk v premium balance is maintained. The MPA will continue to maximise savings by effective use of long term agreements, low claims rebates and other joint purchasing/procurement options.

4. Helicopter Insurance - The NPIA currently manage the procurement of insurance brokerage and insurance placement for the national framework for police helicopter insurance. Following the NPIA enforced non-compliant contract position for the period 2010/11 (as well as the increasing claims experience within the Framework), the MPS has appointed a specialist aviation broker (Haywards Aviation) in compliance with contract regulations, with a view to them obtaining alternative aviation quotations outside the Framework, ensuring that the MPA is able to benchmark the value of the existing Framework and helping ensure contract compliance. An EU compliant tender process for the insurance cover (premium circa £485,000) has been started.

5. Personal Insurance Indemnity Policy (PIIP) - The Policy and Standard Operating Procedure continue to give a level of reassurance to officers and staff involved in high risk duties, whereby they will not be financially penalised in the event their own personal insurance arrangements refuse to pay out because the job restricted what they can disclose. There have been a number of formal specific notifications (as well as informal enquiries) to the Insurance Management Team covering 40 MPS officers in 17 deployments, regarding the PIIP and its possible application during the year. The main reason for the enquiries, is seeking clarification that the MPA indemnity will come in to play when for reasons of operational security, the activity cannot be disclosed to the officers insurers. Reassurance is given on this basis as well as reminders to officers that the PIIP is primarily a contingent cover, in that it will only come in to play should their own personal insurances default in the payment of a legitimate claim. The maximum amount payable under this PIIP is £500,000 in respect of any one accident, occurrence or incident giving rise to a claim or claims under qualifying insurance (defined as a personal life insurance or personal accident insurance policy arranged by or for the benefit of a member of staff, their family and their other dependents and in the aggregate in respect of all claims under such qualifying insurance). The current limit of £500,000 remains adequate for PIIP purposes. It is recommended that the PIIP be renewed for another 12 months.

6. Reserves - There are 3 reserves established for the; property risks, motor liability risks and the Personal Insurance Indemnity Policy (PIIP). As mentioned in last year’s insurance report, the adequacy of all Reserves was to be reviewed.

The property reserve, following this year’s renewal will be increased to £533,717 and it is recommended that this continues to be built up to £2M.

The Motor Reserve, following this year’s renewal, will reach its agreed limit of £5M therefore allowing the funding of this Reserve (approx. £730,000 per annum) to be released as savings back in to the MPS.

The PIIP reserve currently stands at £855,000 and is annually topped up by £175,000. No upper limit on this Reserve had been established and no calls have been made against it. It is recommended that this Reserve be closed off at £855,000 with the protection of the Emergency Contingencies Reserve being used as a financial backstop. Thus freeing up the funding of this Reserve (£175,000 per annum) and for it to be released as savings back in to the MPS.

C. Other organisational and community implications

Equality and Diversity Impact

1 The tender and renewal of the insurance programme, reappointment of the MPA’s insurance brokers and the Reserve movements, do not have any specific impact on equality/diversity issues or on any different communities.

Consideration of MET Forward

2. There are no implications on the delivery of Met Forward (re MET Support) as the renewals and funding issues in this report only impact positively on these areas with improved Value for Money.

Financial Implications

3. The financial impact of the proposed insurance premium arrangements is set out in the Exempt Appendix and results in an overall savings of £642,000.

4. Motor Reserve - In line with agreed policy, it was agreed that this Reserve should be built up to £5M and the table below outlines how this has been achieved and that planned future payments can now be released as savings in the next financial year.

5. Property Reserve - In line with agreed policy it is intended that this Reserve will be built up to £2M. As at last year’s renewal, the total stood at £300,000. The savings on property premiums this year (compared to the premium quoted in 2007 of £1,631,893) is £233,717 (including this year’s overspend of £15,823 on property damage and savings of £22,358 on Contractors All Risks). This amount will be transferred to this Reserve, making a total over the next 12 months of £533,717. Property premiums may however be affected by a property insurance valuation currently being undertaken on the estate. Any resultant change in premiums will affect the level of contribution to the property damage reserve.

6. Personal Insurance Indemnity Reserve (PIIP) - As mentioned, no upper limit has ever been established for this Reserve which currently stands at £855,000 and is topped up by £175,000 per annum. Following internal discussions, it’s been considered that a better way to financially manage this risk, would be to close off this Reserve and utilize the Emergency Contingencies Reserve (currently standing at £23.093M) as a financial ultimate backstop. Thus allowing the two fold benefit of releasing the current funding of the PIIP Reserve as savings to the MPS in the next financial year as well as giving an immediate greater upper ceiling limit due the greater resources of the Emergency Contingencies Reserve.

Legal Implications

7. The Authority has the power to enter into contracts for services in connection with the discharge of their functions (including Insurance and Insurance Brokerage) under section 1 of the Local Government (Contracts) Act 1997. The exercise of the option to extend the contract with Heath Lambert was included in the original contract which was tendered in compliance with the Public Contract Regulations 2006. The contract value of the new contract with the aviation broker for their services in respect of the helicopter insurance was below EU threshold - therefore, the Public Contract Regulations 2006 do not apply. This report anticipates that the Property Insurance and Helicopter Insurance are all going to be re-tendered shortly. The tender processes will be run by the relevant insurance brokers acting as agents for the MPA/MPS. In respect of compliance with the requirements of the Public Contract Regulations 2006 the brokers will seek advice, where necessary, from Procurement Services during the tender process. General Liability, Terrorism, Motor Liability, and Contractors All Risk Insurance were all awarded this year after tender processes were carried out by the brokers. The brokers were advised and guided by Procurement Services to ensure compliance with the Public Contract Regulations 2006.

Environmental Implications

8. There are no environmental impacts arising from the insurance related proposals in this report.

Risk Implications

9. The risk implications remain unchanged as the cover purchased is equivalent to the expiry cover. The opportunities are that the deductible for the general liability policy has been reduced (thus putting more of the risk on to the Insurers) and the availability of a £9M annual aggregate stop on the liability programme, puts a financial upper limit on claims that the MPS may have to pay out in any one year.

D. Background papers

• Heath Lambert Renewal Report 2010, Insurance Broker performance framework matrix

E. Contact details

Report authors: Gordon Mitchell, Strategic Insurance Manager, MPS.

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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