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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 07/02/2006
INSURANCE FUND REVIEW



Summary & Purpose
To review the level of the Council’s Insurance Fund in the light of developments in the local authority insurance market and Waverley’s financial position.

APPENDIX G
Waverley Borough Council

EXECUTIVE - 7TH FEBRUARY 2006
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Title:
INSURANCE FUND REVIEW
[Wards Affected: N/A]
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Summary and purpose:

To review the level of the Council’s Insurance Fund in the light of developments in the local authority insurance market and Waverley’s financial position.
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Environmental implications:

There are no direct environmental implications.

Social/community implications:

There are no social or community implications.

E-Government implications:

No e-government implications.

Resource and legal implications:

There are no direct legal implications. This report considers how nearly 1.4m of Council funds are to be used in the future. Details are included in the report. Any change to the use of the insurance funds will need to be approved by Council.
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Introduction and Background

1. In June 2005, Members were informed of the outcome of the tendering exercise for the Council’s insurance policies. Following this report, Members asked officers to review the insurance fund and to report back to the Executive after the results of the housing transfer ballot were known.

2. The Council created two insurance funds many years ago. They are the

3. This report does not consider the Housing Revenue Account uninsured provision which is retained.

Insurance Reserve

4. The Insurance Reserve was established to counter the vagaries of the insurance market and to build a specific financial provision following the demise of Municipal and Mutual Insurance Ltd (MMI), a local authority owned company which provided insurance specifically to local authorities. In October 1992, MMI entered into a Scheme of Arrangement in an attempt to achieve a solvent run-off of outstanding claims following voluntary liquidation. Under the Scheme of Arrangement, the Council could be liable for an estimated contribution of 500,000, however, it is not expected that all of this will become payable as MMI moves towards a solvent run-off. The Council’s insurance broker has advised that other authorities are treating the provision differently, but many are providing a 50% sum. If this approach were followed, provision of 250,000 would be required.

Self Insurance and Excesses

5. As part of the Council’s tendering of insurance in 2005, officers tested whether a degree of self-insurance or a change in claims excesses was financially viable. Based on the market response, the Council’s exposure was left unchanged because no advantage was forthcoming. From 1st July 2005, the Council entered a 5 year long term insurance agreement with Zurich Municipal. Whilst changes to insurance provision are not impossible in this period, they are fairly unlikely. In view of this, Members could consider using part of the Insurance Reserve for other purposes. However, this would not allow scope for future consideration of the self-insurance option at the next tender renewal.

Uninsured Items

6. There are a number of costs that are not insured, such as the excesses deducted from insurance claims, the costs of rectifying vandalism damage and the costs of repairing certain high-risk Council-owned assets such as bus shelters. The Council has never used the Insurance Reserve to cover these areas. These costs are generally covered by revenue budgets or specific Capital Programme items. This report suggests a continuation of this policy.

Asbestos

7. Asbestos claims have not been covered by insurance since 2002. The Council has undertaken extensive assessments, both Housing and General Fund, in an attempt to understand and mitigate future claims. Transferring part of the reserve for other purposes would force the Council to use other reserves and balances in the event of a proven claim. The Insurance Fund could be used to cover employee claims.

Stock Transfer

8. In the event of Stock Transfer, the Council would have been required to give environmental warranties to the new Registered Social Landlord (RSL). They would have cost in excess of 200,000, but are now not required.

Insurance Fund

9. The Council operates a contractual personal accident policy offering compensation for death or injury to staff whilst at work. Since 2002 the Council took the opportunity to buy insurance cover in the market at competitive rates which also increased the maximum loss covered in any one year. Whilst this cover is beneficial, it does not cover all contractual conditions, nor does it cover ongoing claims before 2002, one of which is in payment. In view of this twin cover, Insurance Fund plus external cover, Members could consider transferring part of the balance for other purposes. However, a minimum balance of 250,000 is recommended, recognising that uninsured claims in excess of this would need to be charged to other reserves and balances.


Conclusion

10. This report reassesses the level of the Insurance Reserve and Fund in the light of general advice from the Council’s brokers and developments in the Insurance market. If the Council accepts the potential loss of flexibility to deal with changing insurance and market conditions it is possible to

Risk Analysis

11. The decision to transfer these amounts from the Insurance Fund and Reserve would leave:

Recommendation

It is recommended that the Executive reviews the Insurance Reserve and Insurance Fund and decides whether to recommend to Council that

1. 722,000 be transferred from the Insurance Reserve for use in the Revenue Reserve; and

2. 130,000 be transferred from the Insurance Fund for use in the Revenue Reserve.

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Background Papers (DoF)

There are no background papers (as defined by Section 100D(5) of the Local Government Act 1972) relating to this report.
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CONTACT OFFICER:

Name: Paul Wenham Telephone: 01483 523238
E-mail: pwenham@waverley.gov.uk

comms/executive/05-06/269