The changing shape of the “Third Sector”:
In recent years the sector has seen a growing trend towards the delivery of public services. Charities and Social Enterprises are becoming ever-more adept at tendering for, and winning, contracts to deliver services previously provided by Local Government and Primary Care Trusts. In some cases the organisations winning the contracts are the primary contractor; in other cases they are winning only a part of the contract, on a sub-contracted basis, with earnings decreasing the lower down the food chain. Despite the, often, limited income and subsequent surplus some of these contracts provide they are a popular way for charitable organisations to grow in size, maintain or grow staff levels and to achieve their charitable objects. With this trend comes implications for the sector – some obvious, some not so obvious.
Despite the increased awareness of specialist charity insurance providers, contracts and covers there is still a great lack of understanding over what insurance policies cover, how they work and what level of communication charities should be maintaining with their provider, be they broker or insurer.
At the most basic level and where we see the greatest frustrations, trip ups and misunderstandings, winning a contract can place onerous insurance requirements on a charitable organisation. They can also place requirements upon an organisation which are less onerous, but which can cause some difficulties:
Public Liability: £10,000,000 – Most insurers can accommodate this limit, but not all. Therefore it is always worth checking with your insurance provider that this level of cover can be provided (and at what price) prior to tendering for a contract.
Professional Indemnity: £1,000,000-£5,000,000 – This is the most difficult cover to arrange. A number of charity insurers can provide cover up to this limit, but not all. Some can provide cover up to £1,000,000 but not £5,000,000. Usually these are insurers where Professional Indemnity is offered as part of a wider policy with several sections of cover. Often the problem is that because of the insurer, or their wording, other insurers will not “follow their line” and provide an additional/top up layer of cover, necessitating the inception of an entirely new policy with higher limits. Often charities have little or no Professional Indemnity exposure and so insurers charge a minimum premium. Minimum does not necessarily mean low, however. One client of ours had to pay £2,500 to satisfy this kind of requirement – and they had a turnover of less than £1M.
Period of Cover
Contracts can also impose a requirement upon the contractor to carry insurance for a minimum specified period of time. As Professional Indemnity insurance only provides cover while a policy is in force this requirement most commonly applies to this type of cover. An extreme example of this is our client mentioned above. They were required to carry Professional Indemnity cover for 13 years from the commencement of the contract. Assuming no changes to the rates that’s £32,500 over years cost to the charity to deliver a public service. Whilst this premium isn’t wasted by any means it can seem extreme and unduly expensive, effectively pushing some small to medium size charities out of the running to deliver public services, as larger organisation may already have this type and level of cover.
Of course, your considerations of insurance should not just be occupied with the contractual requirements placed upon your organisation. You should also be keenly considering what implications delivering public services, and entering into major contracts, might have on the frequency and severity of claims made against you, or incidents which may lead to a claim. It may seem obvious, but if your organisation takes on new and/or larger contracts you will find yourselves working with more service users, potentially in more locations, requiring more staff and an increased need to risk assess and risk manage. So whilst you may need higher limits of cover to meet certain contractual requirements this must be balanced against the increased likelihood of a claim, for example:
More service users mean more scope for things to go wrong:
- How many claims do you incur, per year, dealing with 100 service users, if you take on a contract to work with an additional 500 how many claims might that mean?
- Do you have the capacity to deal with increased numbers of service users effectively?
- Can you deal with service users with more specific/diverse/intensive needs?
- Will you have to amend the activities or care you provide to service users to reduce the risk of a claim occurring?
More locations will have an impact on your ability to assess and manage risk in those locations:
- Can you adequately assess and manage multiple/increased locations?
- Will you have enough staff at each location?
- Will you be able to discharge your duty of care to service users and staff at multiple locations?
- Are your supervisors qualified and experienced enough to operate away from head office?
More staff could mean less time taken over selection, training and development:
- Might you introduce staff who are unsuitable to the role into the charity, putting service users and other staff at risk?
- Can you maintain minimum levels of first aiders, fire wardens, supervisors, managers, etc?
- Will you be able to effectively monitor the activity and quality of increased numbers of staff?
These are all questions for a charity to answer. These questions should help to highlight the concerns of insurers, and also to help illustrate why premiums increase as the result of increased work load. Insurers will also want to know how these changes/contracts will affect your income, wageroll and sub-contractor payments as these are rating factors for your liability covers – Employers & Public Liability, Management Liability and Professional Indemnity.