In accordance with the latest UK government guidelines, all RMP colleagues are now working from home until further notice. Despite not being able to meet with you in person, we are very much open for business and you can reach all our teams by phone, email or social media as we continue our mission to deliver the best service possible for you and all of our clients.
Thank you for your understanding and support as we do our bit to help mitigate the risks associated with COVID-19 in these extraordinary times.
Take care and stay safe from all at RMP

rmp-logormp-logormp-logormp-logo
  • Why RMP
  • Who we work with
  • Resources
  • Insights
  • People
  • Get in touch
  • RMP Europe
Published by Risk Management Partners on January 16, 2020
Categories
  • 2019
  • Articles
Tags

Making the 2020s about long-term partnerships between insurers and local authorities

Home > Making the 2020s about long-term partnerships between insurers and local authorities

In recent years, the shifting risk landscape and change to the UK’s Ogden discount rate has led us to have real concerns that soft market conditions in the public sector insurance market are out of step with broader commercial market realities. We believe 2020 could be the point at which this mismatch in pricing expectations begins to impact into the market.

The public sector represents a different set of risks and exposures compared to commercial organisations, its diverse range of responsibilities creates a unique set of risks and vulnerabilities.

That unique risk profile is reflected in public sector bodies’ desire for long-term relationships with their insurers, which also allows public sector insurers to spread claims expectations (and soften the blow to pricing) over an extended period. These longer ties are also a major reason why the public sector is typically a step behind the commercial market in reflecting trading conditions.

Given the structure of the public sector insurance market it is vital that there is a better understanding of the changing patterns of claims frequency and severity that the public sector faces.

Claims outpacing rates

Claims patterns over the past 25 years show that high severity claims, in the £1.5-2m range and above, can take as long as five years or even longer to develop. We also know it is the public liability claims profile of the sector, which sets it apart from commercial risks.

The graph below highlights so-called reserve creep since 2011 on an injury claim, approaching £17m over a period of eight years, despite insurers being aware of and on warning of the incident within days of it happening.

In many cases early reporting does not happen. Many liability claims, such as ‘failure to remove’ which affect children’s services, often have an incurred-but-not-reported period of 6-8 years. In a recent example of late reporting, we received a highway claim for a 10-year-old incident which is likely to settle for over £10m.

Having the ability to set parameters for a liability programme that is robust enough to settle liability and motor claims many years into the future, and at future claims values, is how RMP defines sustainability.

Premiums have not kept pace with claims inflation or substantial increases in claims severity and frequency for the period shown on the graph. While over the same timeframe, the lack of cyclical rate adjustment has steadily eroded insurers’ profit margins.

Long-term thinking is needed

The impact of persistently low premium rates combined with claims inflation is seen in a contracting appetite across commercial insurance lines from solicitors PI to UK casualty, motor and construction business. Further dilution of capacity is expected as insurers continue to exit poor-performing classes of business.

 

This impact has not yet been felt in the public sector market, but it would be naïve to believe it is insulated from the wider rebalancing act among insurers moving towards a more sustainable product.

The insured plays a role in this process by ensuring the tender process results in the best value for their business across the total cost of risk, including retentions and deductibles, not merely a scratch calculation based on premium.

History shows that there is nothing more expensive than cheap insurance. Public sector insurance buyers should bear this in mind when assessing of the sustainability of terms and the price of risk. Inevitably, when factoring in such factors, decisions will come down on the side of strengthening long-term relationships between insurers and local authorities

 

As a long-term partner, getting this balance right is vital to the obligations of an enduring relationship.

This article does not purport to be comprehensive or to give legal/insurance advice. While every effort has been made to ensure accuracy, Risk Management Partners cannot be held liable for any errors, omissions or inaccuracies contained within the document. Readers should not act upon (or refrain from acting upon) information in this document without first taking further specialist or professional advice.

Risk Management Partners Limited is authorised and regulated by the Financial Conduct Authority. Registered office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company no. 2989025

LATEST ARTICLES

  • A school’s best friend: How to safely introduce a dog into the school community
    February 3, 2021 0
    0
  • Managing risk in uncertain times
    January 28, 2021 0
    0
  • Can green schemes drive economic recovery for local authorities?
    December 3, 2020 0
    0
  • Universities – managing student mental health has never been more important in the response to COVID-19
    November 19, 2020 0
    0
  • Working from the discomfort of your own home
    September 23, 2020 0
    0

Related Articles

Duty of Care

Managing wellbeing and mental health is critical for the education system where the provision of support services has often been lacking.

Read more

Better collaboration for better infrastructure in the 20’s

The last 25 years have seen the completion of some spectacular infrastructure projects, what does the next decade hold?

Read more

Anytime, anyplace, anywhere: The transformation of working habits

Managing wellbeing and mental health is critical for the education system where the provision of support services has often been lacking.

Read more

Is sustainable construction possible?

UK housing trends have seen significant shifts during the past quarter of a century, a period which has seen the average house price escalate by more than 400%.

Read more

Sign up to receive the latest from RMP

Short Form Privacy Notice

Risk Management Partners Limited is the data controller of any personal information you provide to us or personal information that has been provided to us by a third party. We collect and process information about you in order to arrange insurance policies and to process claims. Your information is also used for business purposes such as fraud prevention and detection and financial management. This may involve sharing your information with third parties such as insurers, reinsurers, other brokers, claims handlers, loss adjusters, credit reference agencies, service providers, professional advisors, our regulators, police and government agencies or fraud prevention agencies.

We may record telephone calls to help us monitor and improve the service we provide. For further information on how your information is used and your rights in relation to your information please see our privacy notice at https://rmpartners.co.uk/privacy-policy. If you are providing personal data of another individual to us, you must tell them you are providing their information to us and show them a copy of this notice.

You can opt out of marketing communications at any time by contacting us

RMP

  • Classes of insurance
  • Resources
  • Why RMP
  • Insights
  • Get in touch

Sectors

  • Local government
  • Police
  • Fire services
  • Education institutions

Legal

  • Complaints
  • UK Privacy Notice
  • EEA Privacy Notice
  • Cookie policy
  • Terms and conditions
  • Lloyd’s Brexit Transfer

Follow Us

  • LinkedIn
  • Twitter

© Risk Management Partners Ltd All rights reserved. Authorised and regulated by the Financial Conduct Authority number 313119. Registered in England number 2989025. The Walbrook Building, 25 Walbrook, London, EC4N 8AW