Strategic review of risk management and insurance

Report: 7
Date: 17 October 2000
By: Treasurer

Summary

The report asks the Committee to agree the specification for a strategic review of risk management and insurance and to agree arrangements for appointing consultants.

A. Supporting information

Introduction

1. At its meeting on 20 July 2000 the Committee agreed that there should be a strategic review of risk management and insurance and that in the meantime short term measures should be put in place to cap the Authority’s risk exposure. At its last meeting on 19 September the Committee approved arrangements for property insurance and noted that Aon Risk Advisers were carrying out a review to develop recommendations for short term liabilities cover. It is hoped to bring those recommendations forward to the Committee at its next meeting.

Strategic review

2. Appendix A sets out a proposed specification for the strategic review. The expected outputs from the review are:

• An analysis of the key risks facing the organisation and their potential impact.
• A recommended approach and process for securing greater control and better management of risk.
• Initial priorities for a risk management programme.
• A strategy for funding the financial costs arising from risks.
• A recommended structure of external insurances.

3. The review needs to be completed in time to allow us to place insurances in accordance with the agreed structure as at 1 October 2001 which would be the first opportunity to take advantage of the proposed consortium arrangements with other south east police authorities reported to the last meeting of the Committee, if that is considered appropriate. The MPS has developed a formula based approach to resource allocation decisions known as the Resource Allocation Formula (RAF). RAF is concerned with identifying differences in relative demand between boroughs. RAF does not seek to identify the absolute level of funding required for policing functions.

4. It is proposed to go out to tender for this review. It is difficult to estimate the likely cost in advance of receiving submissions but it will probably be not less than £50,000. I would propose to invite a short list of firms to make a presentation to myself and the panel of members previously established for this purpose by the Committee. I would then make the appointment on the advice of the panel.

B. Recommendations

1. That the Committee approves the draft specification for the strategic review of risk management and insurance.
2. That the panel of members receives presentations from short listed firms to advise the Treasurer on the appointment.

C. Financial implications

The cost of the review is expected to be not less than £50,000. This forms part of the first year set-up costs that will be addressed in constructing the Authority’s opening balance sheet.

D. Review arrangements

The result of the tender process will be reported to the Committee.

E. Background papers

The following is a statutory list of background papers (under the Local Government Act 1972 S.100 D) which disclose facts or matters on which the report is based and which have been relied on to a material extent in preparing this report. They are available on request to either the contact officer listed below or to the Clerk to the Police Authority at the address indicated on the agenda.

None.

F. Contact details

The author of this report is Peter Martin.

For information contact:

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

Appendix A: Strategic review of risk management and funding draft specification

The Metropolitan Police Authority (MPA) has inherited a financial regime where the costs arising from insurable and/or avoidable events are met entirely from the Authority’s own resources.

The costs of third party claims of all kinds are on a rising trend. This situation also has adverse consequences for the reputation of the Metropolitan Police Service (MPS) and its operational effectiveness.

The Authority wishes to ensure that there is effective risk management throughout the MPS operations in order to improve control of the financial and other consequences, and to have in place appropriate insurance and funding arrangements to limit exposure and improve predictability of future resource implications. The Authority is in the process of putting in place short term insurance arrangements to protect the overall position pending an in-depth review of the long term requirements.

A strategic review is therefore required to analyse the significant risks to which the MPA/MPS are exposed. This will identify the main types of risk and their potential impact. It will propose a process for improving the management of risk and assess the resource implications. It should advise on the initial priorities for a risk management programme.

The intention is that the detailed development and carrying out of a risk management programme would follow on after the completion of the strategic review.

The programme must be led and managed internally in the MPS.

The role of external advice to the programme would need to be considered separately. The review will also develop recommendations on the funding of the financial costs resulting from insurable risks and the role of external insurance.

The review should be completed in time to be able to implement revised insurance arrangements from 1 October 2001.

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