21 February 2003
Councils and other public sector bodies are beefing up their risk management policies in the face of huge rises in insurance premiums.
They are also being forced to absorb larger excesses – a situation made worse by the small number of firms willing to offer insurance to the public sector.
According to the Association of Local Authority Risk Managers (Alarm), premiums have risen by an average of 30% during the past year. Increases have been blamed on terrorism, adverse weather, the recession, and the 'claims culture' operating in the UK.
Sheila Boyce, Alarm's chief executive, said councils were using self-insurance to reduce premiums, but this risked eating into financial reserves. She added: 'It's not just a case of paying two or three times as much [in premiums]. Insurers are demanding that we pay higher excesses.'
Newham council faces a 40% increase in property insurance. Sharon Roots, corporate risk manager at the London borough, said it was hard to absorb risk in the same way as a private firm. 'We are in the leisure and care industries and we have all of the problems associated with being a social landlord,' she explained.
A survey carried out last year among authorities in Greater Manchester showed highway claims alone rose by 28%. Barbara Cotton, risk manager at Oldham Borough Council, said there was evidence of a rise in fraudulent claims, although it was difficult to assess how many.
Local authority insurance is dominated by three companies. Cliff Skeates, underwriting manager at the largest insurer, Zurich Municipal, said the introduction of 'no win, no fee' claims had led to increased costs. 'People are more aware of the opportunity to claim,' he said. The decline of the stock market, which meant that insurance companies were making less from investments, also resulted in higher premiums.
Housing associations say it is becoming more difficult to find insurance at all, as many well-known firms are no longer willing to quote for social landlords.
The situation is being monitored by the National Housing Federation, which will debate insurance at its annual finance conference next month.
Frank Czarnowski, finance director at West Kent Housing Group, with 5,000 homes, said: 'Associations are easing excesses up to bring down their premiums, but it does not necessarily save money if you end up paying out the same amount.'
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