Insurance arrangements

Report: 15
Date: 18 April 2002
By: Treasurer

Summary

This report explains the need for arrangements to be put in place to tender for long term insurance advisors and recommends a one year extension of the existing arrangements.

A. Recommendations

The Committee is recommended to:

1. agree the arrangements for retendering for the authority's long term insurance advisors;
2. agree the extension of the existing arrangement for a further year.

B. Supporting information

Strategic approach

1. Prior to the formation of the Police Authority the MPS, in line with central government generally, did not carry external insurance (with some very specific exceptions) and met liability claims on a pay-as-you –go basis. At its first meeting on 20 July 2000 the Finance, Planning and Best Value Committee agreed that the Authority needed to have insurance to cap its risk exposure. The Committee approved a three stage process as follows:

• Stage 1 was to put in place short term insurances as a matter of urgency;
• Stage 2 was to carry out a strategic review of risk management and long term insurance arrangements; and
• Stage 3 would be the implementation of ongoing risk management arrangements and long term insurances.

Short term insurances

2. Aon Risk Advisers had recently worked with the MPS, firstly to identify potential property insurance arrangements and secondly to review accident claims handling. Given the urgent requirement for short term insurances it was agreed to build on Aon's existing knowledge of the MPS and they were contracted, on a single tender basis, to secure property and liabilities insurance for one year.

3. Property insurances, including terrorism cover, were effected from 1 October 2000. However liabilities insurance proved much more difficult due to the absence of reliable claims data and concerns within the insurance community about the nature and extent of the risks of the business. Cover was finally placed with effect from 1 August 2001, and then on a limited basis which leaves the Authority bearing a substantial level of risk itself.

4. The property insurances have already been renewed once and will be due for annual renewal again from 1 October 2002. The liabilities insurances will have to be renewed from 1 August. 2002.

Strategic review of risk management and long term insurance arrangements.

5. At the same time that Aon were working to establish the initial insurance arrangements the process was commenced to appoint consultants to carry out the strategic review as Stage 2 of the agreed approach. Willis were appointed as a result of a competitive tendering process. Aon had also been interviewed in the selection process.

6. Willis had effectively completed their review by the end of July 2001, i.e. at about the same time that Aon were placing the short term liabilities insurances, and provided their final report during the autumn. A group of Authority members has reviewed Willis' findings in detail and supported the conclusions as a basis for the MPS introducing systematic risk management. The MPS, supported by the Treasurer, is proceeding initially to appoint a risk manager.

Implementing long term arrangements.

7. Although risk management is being taken forward it has not yet been possible to address the insurances on a long term basis. Members will appreciate that the timing of the three original stages has got out of sync because of the length of time taken to secure the short term liabilities insurances. The data problems which were at the root of the difficulties still remain although the situation will improve progressively as current claims information is recorded in line with the insurers' requirements.

8. In order to take forward the insurances for the long term it is necessary first to appoint insurance/risk advisers on a permanent basis. Aon's contract relates only to the initial short term insurance arrangements, whilst Willis were appointed to carry out a specific defined review. Consideration has been given to the timing of a permanent appointment. Whilst it would have been possible to make such an appointment before the liabilities renewal is due in August the timetable would have been extremely tight and would have left the advisers very little time to review the existing arrangements in any depth. In any case the scope for securing any significant change in the insurances would still be very limited because of the continuing data deficiencies.

9. It is therefore proposed to manage the appointment of permanent insurance/risk advisers so that the contract commences on 1 November 2002, after the current insurances for both liabilities and property have been renewed for a further year. This will give the new advisers the maximum time to prepare for the following year's renewal process. In order to facilitate this the present arrangements with Aon will be extended so that they manage this year's renewals.

Contract timetable.

10.The proposed timetable is as follows:

Fax OJEC notice to Luxembourg (already completed)

1 April 2002

Last day to receive applications

8 May 2002

Undertake financial and technical appraisal of applicants and draw up list of companies to be invited to tender

9 May 2002 to 6 June 2002

Issue Invitation to Tenders documents

7 June 2002

Last day to receive tenders

18 July 2002

Evaluation of tenders, clarifications, presentations, and recommendation for award

19 July 2002 to 30 September 2002

Award contract

1 October 2002

Contract to commence

1 November 2002

11. It is proposed that the contract be for a period of three years with options to extend up to a further two years. Aon have informally indicated they are content with an extension to manage this year's renewals.

C. Financial implications

The latest position on insurance premium costs, funded from within existing budgets is as follows:

D. Background papers

None.

E. Contact details

Report author: Peter Martin, Treasurer, MPA.

For information contact:

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

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