Liabilities insurance

Report: 11
Date: 19 July 2001
By: Treasurer

Summary

Together with the associated exempt paper this report sets out proposals for implementing liabilities insurance.

A. Recommendations

1. Insurance arrangements in respect of the employers liability, public liability, third party motor and other policies be approved in accordance with the detail in this report and at the premium stated in the exempt item.
2. Authority be delegated to the Treasurer in consultation with the Chair of the Committee and the informal insurance group of members to agree the renewal of the property insurance.

B. Supporting information

Introduction

1. The Committee received reports on risk management and insurance in July and September 2000. The position inherited by the Authority was one where the Metropolitan Police Service had not generally insured against risks in line with the usual approach in central government. The cost of damage to MPS and other parties' property and claims against the MPS have been dealt with on a pay-as-you-go basis out of current revenue.

Strategy

2. The Committee agreed a three stage strategy as follows:

• short term insurance arrangements should be put in place as a matter of urgency in order to cap the Authority's risk exposure;
• there should be a strategic review of risks and the establishment of an ongoing risk management programme;
• following on from the strategic review long term insurance arrangements should be put in place.

3. Aon Risk Services had already provided a preliminary report to the Receiver on property insurance and had carried out a review of claims handling in the accident claims section of the Department of Procurement. It was agreed to build on Aon's existing knowledge of the MPS and they were appointed to secure short term insurances.

4. As a result property insurances were placed on Aon's advice with effect from 1 October 2000. It was anticipated that recommendations for insurances to cover the principal liabilities, ie: public liability, employers liability and third party, would be brought forward in November 2000.

5. In the meantime steps were taken to appoint advisers to carry out the strategic review of risk management and long term insurance arrangements. Willis were appointed and their work on risk management is well advanced.

Liabilities insurance

6. Aon commenced the task of securing short term liabilities insurance in August 2000. By November/December it was apparent that Aon were having difficulty securing interest in the insurance market. One meeting was held with a potential insurer but with no result.

7. The principal problem related to the data which the MPS was able to provide on previous claims. Because claims had been dealt with on a pay-as-you-go basis there was no claims history in a form that the insurance market could readily recognise. In particular claims could not easily be identified to the period when the liability first arose. Consequently insurers could not assess the likely risks relating to a specific insurance period and were therefore very reluctant to quote.

8. With advice from Aon some limited data has been extracted manually. This has involved particularly Procurement Services and the Legal Department with support from Finance. This data was eventually assembled by 25 June 2001. As a result Aon have now secured a quotation for liabilities insurances which is detailed in the attachment.

Insurance proposal

9. The cover offered is limited in a number of ways. Firstly it is offered for one year only; there is no question of a long term agreement.

10. The cover is for employers liability, public/products liability, third party motor, officials indemnity and fidelity guarantee, but excludes employment practices liability, employment related costs and/or counsels fees and employment tribunal awards.

11. Inevitably cover is not retrospective and so all claims relating to events occurring prior to the insured period will still have to be met in full by the MPA. The basis of cover for the insured period is 'claims made' rather than the normal 'claims occurring'. This means that the insurer's liability will be restricted to claims arising in the insured period which have also been registered in the period. This therefore excludes claims arising from events occurring in the insured period where the claim is not made until after the end of the insured period.

12. The policy provides catastrophe cover, ie it is based on the MPA self funding a level of 'normal' losses. The aggregate stop-loss at which the insurer would become liable to meet claims is relatively high. It is set at £40 million compared with claims paid in 2000/01 of £27 million. On a claims made basis the figure for 2000/01 would probably have been significantly less than the total payments.

13. There is no individual excess offered in the policy proposal. This means that all claims, however large, will have to be met in full by the MPA until total claims exceed the aggregate stop-loss.

14. The premium is therefore simply buying layers of cover above the £40 million level. Proposed premium and details of the insurer are contained in the exempt paper on this agenda.

15. Specific conditions attach to the proposal in relation to the provision of claims information. The insurer must receive a monthly report in relation to all claims for which indemnity is available under the policy. In addition the insurer will carry out a quarterly audit of files and records to ensure the integrity of the data supply, reserving policy and settlement practice. An additional fee will be charged to cover this.

16. Recommendations on the appropriate layers of cover and resulting premium are set out in the exempt paper.

Property renewal

17. The renewal of the property insurance is being pursued initially through the consortium of south east and east anglian police authorities to which the MPA has subscribed. It is hoped that this approach will bring the benefit of a group discount on insurance premia which would otherwise be available. A decision will need to be made before the next scheduled meeting of the Committee and it is proposed that this be delegated to the Treasurer in consultation with the Chair of the Committee and the informal insurance group of members.

Longer term arrangements

18. As part of the contract to review strategic risks Willis will be providing advice on long term risk funding. This will help to inform actions which need to be taken in advance of the insurance renewal process next year.

C. Financial implications

The premium recommended in the exempt report can be contained within the Authority's budget provision for insurances.

D. Background papers

None.

E. Contact details

The author of this report is Peter Martin.

For information contact:

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

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