Personal Insurance Invalidation Policy

Report: 8
Date: 18 October 2007
By: Director of Strategic Finance on behalf of the Commissioner

Summary

For some three years now an MPA indemnity has been in place for MPS personnel against their personal life and accident insurances being invalidated through innocent non-disclosure of material information [1] relating to duties that cannot be disclosed to insurers for operational reasons. Whilst the indemnity has provided reassurance to our people successfully, mass claims following a catastrophic incident in London (most likely a terrorist event) could exceed the MPA’s ability to indemnify. This report seeks approval for an approach to HM Treasury for a ‘top-up’ indemnity and explains why a proposal to convert the existing arrangement into a discretionary scheme is considered inappropriate.

A. Recommendations

That

1. the Director of Strategic Finance, supported by the Director of Risk Management, approach HM Treasury for a ‘top up’ personal insurance invalidation indemnity; and
2. the current indemnity should not be converted into a discretionary scheme.

B. Supporting information

1. In December 2004 Finance Committee approved (for an initial period of 12 months) a personal insurance invalidation indemnity relating to the issue of potential insurance difficulties that could adversely impact on operations. The indemnity has been renewed for two further years. In December 2007 the MPS will seek a further extension of the indemnity. The indemnity covers personnel engaged in high risk and/or covert duties where:

1. an insurance company might legitimately refuse to pay a claim under a life insurance or personal accident insurance arranged by or for the benefit of the person concerned, their family and other dependents due to non-disclosure of so-called “material information”;
2. a claim under a life insurance or personal accident insurance might be excluded from cover by reason of the nature of the duties (e.g. where war and/or terrorism exclusion clauses in an insurance are activated);
3. an individual may be unable to arrange insurance to cover high-risk/covert duties or to arrange such insurance at a competitive premium.

2. The personal insurance indemnity has successfully reassured Service personnel that their personal financial circumstances will not be jeopardised by insurance difficulties relating to involvement in high risk duties, including duties that cannot be disclosed to insurers for operational reasons. This in turn has provided a solution to the corporate risk arising from individuals not wishing to jeopardise their financial security.

3. The personal insurance indemnity provides the following benefits in addition to its primary objective of reassurance for our officers and staff:

• The only alternative to an indemnity is expensive insurance which the MPA has not had to purchase
• Cost savings as insurance coverage purchased prior to the indemnity being put in place is no longer required
• Consistent approach across the MPS to the issue of invalidation of officers’ own insurances due to the nature of activities engaged in.

The catastrophic event indemnity ‘gap’

4. Whilst the indemnity has successfully provided reassurance to our people, mass claims following a catastrophic incident in London (most likely a terrorist event) could exceed the MPA’s ability to indemnify from its own funds. For that reason the Authority inserted a clause in the indemnity policy whereby claims would be reduced in proportion if the total amount claimed in relation to an event exceeded the Authority ability to pay. This paper seeks approval for an approach to HM Treasury for a ‘top-up’ indemnity above a mutually agreeable limit to the MPA indemnity.

5. In the light of the need to maximise the MPA’s ability to indemnify, the Finance Committee suggested that the existing indemnity policy could be converted into a discretionary scheme. This is because payments under a discretionary scheme would not attract tax or national insurance and there would in consequence be more funds available to pay claims rather than pay HMRC. On careful consideration the Service considers that a discretionary scheme would defeat the primary objective of the indemnity as Service personnel would lose the reassurance they currently get that, if they comply with the terms of the policy, their claim will be paid (subject to the reduction in proportion clause). Whilst the existing arrangements could probably be made discretionary it would be a complex and time consuming process.

6. The Authority is therefore asked to support an approach to HM Treasury for an indemnity to ‘top-up’ that currently provided locally and to agree that current indemnification arrangements should not be converted into a discretionary scheme.

 C. Race and equality impact

1. To avoid any equality issues the indemnity policy applies to all police officers and police staff engaged on high-risk activities.

2. The indemnity applies when off duty as well as when on duty since a failure to disclose material facts relating to operational duties to insurers makes an insurance policy voidable even if an accident is unrelated to the duties.

D. Financial implications

1. In addition to maximising the reassurance for MPS officers and staff, a top-up indemnity would cap the Authority’s potential financial liability at a level consistent with its self-insurance limits. There are no adverse financial implications of the proposal to approach Central Government.

2. Proposals to build up earmarked provision to cover potential indemnity liabilities are being developed as part of the overall arrangements for insurance cover and were covered in the annual insurance report.

E. Legal implications

The indemnity was developed with the benefit of advice from external legal and insurance advisers in order to protect the MPA’s interest. The Authority has the necessary powers to grant an indemnity.

F. Background papers

• None

G. Contact details

Report author: Nick Chown, Director of Risk Management

For more information contact:

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

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