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Research into Insurance Cover for the VCS in England

Home Office Active Community Unit , Final Report, No T001/ACU-CSD/03,

By Alison Millward Associates with Rawlings Heffernan Consultancy Services and Lucas Fettes, 19 June 2003

For the full text of this report and related materials from the Home Office's Insurance Cover Working Group, please go to http://www.homeoffice.gov.uk/comrace/active/icwg/index.html.

Executive Summary

0.1 Introduction

Alison Millward Associates, with Rawlings Heffernan Consultancy Services and Lucas Fettes insurance brokers, were commissioned in March 2003 by the Active Community Unit (ACU), to undertake a study of the:

• Current situation regarding the provision of insurance cover for the Voluntary and Community Sector (VCS) with respect to public liability, employers, professional, contents and specialised cover; and
• Possible solutions to overcome the difficulties being faced by the VCS in accessing appropriate and reasonably priced cover.

Report work was undertaken in England. The findings however should prove of interest to a wider audience, as the insurance problems identified will be common throughout the United Kingdom.

The ACU set up an Insurance Cover Working Group (ICWG) in 2002 to investigate the insurance problems being faced by VCS organisations, and it was this group that steered the study.

0.2 Methodology

Semi-structured interview schedules (see Annex II) were used to interview a range of individuals from VCS organisations, local authorities, the Charity Commission, insurance brokers and insurance companies (see Annex 1). The main concern was to elicit, from these interviewees, some practical solutions to the problems, temper them with the interpretation and evaluation of the study team, and then present the revised list as a draft Action Plan for further consideration by Home Office ministers and the ICWG.

0.3 Government policy towards the voluntary and community sector

Government has firmly stated its commitment to ensuring that voluntary and community groups are able to play a full role in our society and to helping them grow bigger, stronger and more confident (Home Office, 2002).

Government sees itself as playing the role of an enabler by providing a framework and support within which volunteering and community action can thrive. The setting up of the Active Community Unit (ACU) with a budget of £188 million to invest in local communities and the provision of £125 million for the new futurebuilders investment fund, to help voluntary organisations in their public service work, are practical expressions of this commitment.

A recent major cross-cutting review of the role of the VCS in service delivery (HM Treasury, 2002) underpinned this commitment and recommended:

• A specific target to increase VCS activity by 5% by 2006
• All Government departments to help build capacity in the VCS
• Acceptance that service providers must factor in the full cost of delivering services in the relevant overhead costs associated with contract proposals and that this be accommodated within departmental procurement policies
• Implementation of the 1998 Compact (between Government and the VCS) and its Codes, in full, across Government through departmental champions.

0.4 The insurance problems of the VCS

Various studies in recent years including this one have identified the following insurance problems being experienced by the VCS:

• Average insurance premium increases of between 30-100% per annum, or anything up to 740%
• Withdrawal of cover and often at very short notice (two weeks or less from the renewal date)
• Increasing number of exclusions affecting a wide range of organisations and activities and particularly for care work, youth work and outdoor activities
• Particular difficulties in renewing liability insurance of various types
• Disproportionately negative effect on small and very small organisations and the organisers of one-off events such as village fetes, where the claims history is small
• Scaling down (or cancellation) of activities or complete closure for those organisations unwilling to deliver services without insurance cover
• Inconsistent approach by the Insurance Industry to assessing risks and pricing premiums, even for similar VCS organisations
• Unwillingness by the Insurance Industry to raise its own awareness of the sector's needs, claims history and risk management behaviour and respond accordingly
• Lack of an accessible and competitive insurance market place
• Transference of excessive insurance requirements from local authorities onto VCS service providers and hirers of local authority premises and equipment.

These problems have created nothing short of distress for VCS managers and volunteer organisers throughout the country, as illustrated by the quotes included in the main report.

"I would like to share some of the pain I recently had to undergo in trying to get our insurance cover renewed….our brokers left it until two weeks before the renewal date to contact us….insurer was refusing to renew cover…….I had to continually chase the brokers………in the end I conducted my own independent enquiries……faced an increase from £2100 to £5000 despite being claim free in past 6 years……eventually got it for £2300 from a company new to us…this sector of the insurance market requires urgent action."
Faith group

The motivation of volunteers is being severely undermined and all of this is compromising Government's targets for strengthening and expanding the VCS and volunteering activity. VCS umbrella organisations consider the Industry's behaviour towards the VCS to be worthy of castigation. All those we interviewed and many who responded to the ICWG consultation paper, stress the need for something to be done now before people withdraw their time from, and commitment to, the VCS.

0.5 The Insurance Industry's case

The Insurance Industry has been in a state of turmoil in recent years as a result of many factors (eg September 11th, the collapse of the Independent Insurance company, increased catastrophe losses, poor stock market performance, conditional fee arrangements ie no win no fee, new claims categories such as stress and sick building syndrome). These have led to huge losses. The strategies the Industry has used to overcome its difficulties ie restrictions on cover and increased premiums, have been applied to all sectors of the economy, not just the VCS.

The Insurance Industry has a major influence on the viability of VCS organisations in terms of both provision of adequate cover and premium setting, which is sustainable for the individual groups. Having said that, the response of the Industry to the VCS issues was on the whole disappointing.

Many Insurers lack understanding of the sector and as a result are reluctant to provide cover. They prefer to involve themselves with risks that have a large degree of uniformity in terms of the activities undertaken and the processes taking place.

Risk management has become the major focus of attention in the Insurance Industry. Insurers are attracted to business where Health and Safety and Risk Management are maintained to a very high standard. Good working practices and effective training and supervision are considered to be of paramount importance. It was clear that the VCS suffers from the perception that the people involved tend to be well meaning volunteers with a lack of understanding regarding risk assessments, health and safety responsibilities and the management of risk. Evidence suggests this perception to be without justification.

Many insurers are not prepared to offer cover for liability classes in isolation and this has had a very detrimental effect on small voluntary and community groups where there are no assets that could also be insured.

Larger organisations, within the VCS, will be considered for cover by most insurers as they are perceived to have the organisational structure and skills to ensure compliance with legislation and risk management practices. However those working in the care sector, whether it be with the young, the elderly, or the vulnerable in society, continue to face huge difficulties as insurers are wary of the potential for claims to manifest themselves many years after the event (eg accusations of abuse).

There is inertia within the Industry and despite comments that insurance is cyclical in nature, it is highly unlikely that we will see a dramatic improvement in both the availability and pricing of liability insurance cover for the foreseeable future.

0.6 Local authority roles

The general view amongst members of the ICWG was that the majority of local authorities have been trying to distance themselves from the insurance difficulties VCS organisations have been facing. They too have faced spiralling insurance costs and have been trying to minimise the number of claims being made of their insurers. If they are not able to retain control over a VCS organised activity, they are frequently not prepared to assist with insurance for that activity. Yet, a primary role of local authorities is to maximise the use of premises and equipment for local communities.

On a more positive note we found a number of local authorities to be using a variety of helpful strategies including:

• Use of blanket cover arrangements for public liability insurance for the VCS hirers of premises
• Umbrella arrangements for organisations delivering public services to be covered by the local authority's own insurance policies where the VCS organisation has been unable to arrange it for themselves
• Inclusion of insurance for VCS premises hirers under the local authority's own policies
• Accepting the insurance responsibilities for the activities of all members in a partnership initiative, where the local authority is the lead partner
• Waivers or reductions in premiums
• Signposting VCS organisations to helpful brokers.

0.7 Action Plan

A series of practical solutions which could be actioned, by the various interested parties in the insurance for the VCS issue, are outlined in section 11 of the main report. These include:

Government

• Establish a body to act as "honest broker" in the high level discussions required
• Abolish Insurance Premium Tax (IPT)
• Ring-fence use of IPT for an Emergency Funding Pool or Indemnity Fund to support small organisations or those working in particularly risky areas eg youth work or care work
• Address impact of related legal and policy issues such as no win no fee
• Provide resources, not just policy, for the full recovery of costs
• Provide a Home Office Insurance Scheme for small organisations
• Provide risk management information on the Home Office web site
• Provide risk management information on the Charity Commission web site.

Insurance Industry

• Engage in high level discussions with Government and representatives of the VCS
• Provide more bulk purchasing schemes
• Establish insurance mutual clubs
• Provide risk assessment and management information
• Provide an Emergency Funding Pool
• Extend umbrella arrangements.

Local Authorities

• Develop an insurance toolkit (on LGA and IDeA websites) to promote and deliver a variety of strategies to support the VCS in achieving appropriate and proportionate cover including blanket cover and umbrella arrangements, inclusive policies, waivers and reductions
• Provide an introductory service to brokers and companies for VCS organisations
• Create associations in geographical areas for small VCS organisations.

VCS organisations

• Improve risk management and the communication of good practice
• Establish ongoing dialogue with brokers and insurers
• Develop negotiating power through collaboration within the sector
• Promote accreditation to quality standards for business practices within own organisations and those associated with them.

0.8 Next steps

This report will be recommended to Home Office ministers for action in June 2003. It is published at a time when a number of other studies are coming to a conclusion. This is therefore a particularly good time to start to tackle the problems and with all the interested parties. Government in particular has a unique role to play in bringing the interested parties together and facilitating dialogue, but also in making provision where others cannot.