Agenda item

FCR S143 PROCUREMENT OF CORE INSURANCE PROVISION

Meeting of Cabinet Procurement and Insourcing Committee, Monday 13 February 2023 5.00 pm (Item 7.)

Decision:

RESOLVED:

1. To note the various options considered in the procurement of the Council Insurance contracts.

2. To agree the award of contracts for the following insurance services:

LOT No Policy Coverage Successful Provider

1 Property Deferred See Item 3.4

2 Casualty (Liability)

& Fidelity Guarantee Supplier G

3 Motor Fleet Supplier F

4 Engineering Inspection

& Insurance Supplier B

5 Personal Accident/

Business Travel Supplier H

6 Terrorism Supplier A

3. To approve officers to proceed with the contracts to ensure that insurance cover is in place for 1st April 2023.

4. To delegate authority to the Group Director, Finance and Corporate Resources to award the contract for the [lot 1 - Property] contract under terms as shall be agreed, in consultation with the Chair of Cabinet Procurement and Insourcing Committee, by the Director of Legal, Democratic and Electoral Services, and authorise the Director of Legal, Democratic and Electoral Services to prepare, agree, settle and sign the necessary legal documentation to effect the proposals contained in this report.

Reason(s) For Decision / Options Appraisal

The Council will always be exposed to a range of risks, some of which are insurable and others are uninsurable. The purchase of an effective insurance portfolio manages the potential exposure of the Council to the insurable risks.

The portfolio includes a significant degree of self-insurance, thereby avoiding what can best be described as “pound swapping” i.e. the additional premiums paid for low or no excess on insurance policies effectively cost £1 for £1 on meeting claims payments plus associated costs, and ensuring that the Council benefits from the reduction in claims.

This report covers the insurance policies and arrangements which are due for renewal on 1st April 2023 and excludes the residential leasehold buildings insurance contracts, which are still within contract and which have historically been served by a separate procurement exercise.

As mentioned in the Cabinet Member’s introduction, there was some concern that insurance premiums the Council could have faced prior to the procurement exercise would have resulted in increased costs to the Council. There was further concern that in the marketplace some insurers maintained caution about the risk profile of the public sector. Consequently the Council’s Insurance Services Team has worked hard to mitigate claim exposures and to demonstrate to leading Insurers that the Council has implemented effective control measures and is willing to work hard in partnership with them to transfer or mitigate the risks it is exposed to.

Recommendations to award the contracts to the list of suppliers set out in the main section of this report for Lots 2-6 are the most economically advantageous. This reflects high quality scores for those selected. The price/quality evaluation varied between the types of insurance and a full breakdown of what this covered is included within Appendix B - Costs & Service Comparison Summary (Exempt)

In total the estimated savings in respect of Lots 2 - 6 for the 2023/24 premium over the current contracts are expected to be c.£90k, with the largest saving arising from the Casualty cover. If these premium levels were held throughout the 3 year contract, total savings would amount to c.£270k or c.£450k if the contracts remained in place for the full 3 + 2 year extension. Please note that the premiums quoted within the report are subject to normal increases in line with index linking, higher rates of Insurance Premium Tax, increased rebuilding costs, changes to assets and our claims performance.

As in previous years the cost of claims falling within the policy excess and for which the Council is responsible are met from the internal insurance fund and provision. These funds are reviewed annually (externally biennially) and the appropriate adjustments made within the normal finance activities.

Recommendation(s) relating to the award of Lot 1 - Property is deferred pending further detailed assessment of the proposed terms in the context of certainty of cover, coverage, conditions applied and compliance with the Council’s risk appetite.

Evaluation and assessment of Lot 1 - Property continues with the support of Marsh and appropriate stakeholders within the Council. In order to facilitate the detailed impact analysis and financial implications beyond the accepted risk appetite and to ensure there is sufficient time to mobilise the contract in time for the expiry of the existing contract on 31 March 2023.

Alternative Options (Considered and Rejected)

Insourcing: Due to the nature of insurance as a risk transfer mechanism and the significant financial and resource risks associated with the activities of the Council it is not feasible to insource these contracts. In any event that Council retains an appropriate level of risk through the application of policy deductibles and self-insured retained limits.

Alternative Deductibles: Within the procurement exercise and specifically in relation to Lot 2 - Casualty & Fidelity Guarantee prospective suppliers were asked to provide quotations on a range of different deductibles. However, the terms offered in relation to higher risk retention by the Council, and the associated cost of risk, was not considered to provide sufficient benefit to outweigh the uncertainty of small cost savings.

Minutes:

7.1 The Head of Insurance introduced the report, highlighting the following:

· The results from a tendering exercise in the autumn of 2022 over 6 lots, effectively covering the primary parts of the Insurance Programme and liabilities of 3rd parties to the council.

· The 6 lots were spread between property, liability, motor fleet, engineering and inspection, insurance risk, personal accident/ business and terrorism;

· The contract was to be awarded on a 3+2 basis with a period of 2 years being optional at the discretion of the Council;

· The procurement process had been challenging with the market changing its attitude to risk, in particular with reference to property risk;

· At the outset of the tender exercise there was some concern that the council may not be able to consolidate the competitive premium rates achieved at the time of the 2018 tender;

· The terms provided for all bids under Lot 1 - Property represented a clear hardening of the market and the overall result of the market exercise, compared to premium spend in 2022/23, was likely to lead to a significant premium increase;

· In relation to Lot 1 there was a request for delegated authority to the Group Director of Finance and Corporate Resources in consultation with the Chair to award the contract. A progress report would be submitted to the March meeting of the Committee on this matter; Lots 2-6 had received a good response from the market with 8 bidders with a potential small saving to the Council.

7.2 Councillor Kennedy asked for clarification on the following:

· Why the heritage insurance had been withdrawn;

· The premium increase in relation to Lot 1 was estimated to be up to 55% and was there a cause for concern. It was not clear how much extra that was likely to be over the lifetime of the contract.

7.3 The Head of Insurance responded that:

· The fine art premium was within the procurement regulations that allowed the Council to negotiate renewal terms each year. The premium was generally around 3-4K with a certain risk. Therefore, the decision had been taken to work through the contracting broker to negotiate the terms rather than undertake a full procurement process;

· In relation to Lot 1 it was necessary to consider the entire risk, not just the premiums and a further evaluation was required. There were a range of figures before the 55% premium increase level. It was considered that there was the capacity to meet these demands with an emphasis on the certainty of risk transferred to the winning supplier.