Zurich's response to the LGA Mutual Proposal

  • We discuss our perspective on the Local Government Association’s (LGA) recent communication to various local authorities
  • With limited information available it is difficult to comment on the viability, or otherwise, of a local government mutual
  • Zurich Municipal has been looking at Alternative Risk Financing, understanding how we can provide different solutions for local authorities

Following the Local Government Association’s (LGA) recent communication to various local authorities, a number of our customers have asked for our views on the initiative. With the limited information available it is very difficult to comment on the viability, or otherwise, of a local government mutual, and we would encourage local authorities to make up their minds on an informed basis. We haven’t yet seen the Feasibility Study from the LGA but we would encourage any council who has been contacted to ask for this to enable them to decide whether this is an option for them or not. In the interests of transparency it would seem appropriate for any such study to be proactively shared with local authorities, to enable them to form their own views.

The timing of the proposal is interesting; local authority insurance is a very competitive market place with more players than for a number of years despite the severity of claims, particularly in the social services and highways public liability, increasing significantly. This has been exacerbated by the Lord Chancellor’s recent decision to amend the Personal Injury Discount Rate. The recent tragedy at Grenfell Tower has also catapulted the issue of adequacy of limits of Indemnity to the forefront; it will be interesting to see how the proposed mutual will be able to protect local authorities at the higher levels we are now seeing being requested. The mutual would of course be able to purchase reinsurance but it will have to compete with existing players, which will add to the costs for any members.

Over a number of years we have consistently talked about the Total Cost of Risk. The largest insurer of local authority risk is local government itself, by virtue of the significant deductibles carried by many councils. Cost saving often focusses on headline premium costs but the biggest savings (or increases) are often in the retained layer. Much of our proposition has been specifically designed to provide comprehensive support to assist councils in managing this risk and defending claims once they have occurred. We have robust supply chains in place which have stood the test of time and operate in a cost effective way to protect our customers. A small increase in the average cost per claim can impact significantly on a council’s retained cost, therefore when considering a mutual or indeed changing supplier, reviewing how a provider will give support in these areas should be a key focus.

At Zurich Municipal we don’t believe in just paying claims. Where significant incidents occur we have a proposition which has a proven track record of supporting customers with all elements of a loss. In the case of property, our Major Loss Team are ‘on site’ immediately, providing support, in addition to providing end to end support throughout the life of the claim, thus, helping customers to make quick decisions at the key stages of the process. For casualty claims we support via our Catastrophic Claims Team who have handled many of the high profile casualty claims involving local authorities over the years. We also have a robust defensive rate and support both individual customers and the sector as a whole by running cases to the Court of Appeal and Supreme Court, to ensure the best outcome for the sector. Our customers will no doubt be interested to understand how the proposed mutual will pick up the mantle in these areas. It is not simply about the claims cost, it is about supporting our customers and their communities in their hour of need, with expertise, resource and the security of knowing that protection is in place.

Another important consideration for councils to keep in mind when reviewing a new mutual will be that the sector is still paying for the previous mutual which went in to run off in 1992. Insurance is a long term investment and claims far in the past can take a long time to settle, or indeed may not be reported for many years after the incident. As with all forms of contract management it’s imperative to look at the potential future pitfalls and ensure you fully understand what you are entering into.
It would also be remiss not to highlight that a discretionary mutual is not insurance. Under an insurance contract there is a right to indemnity providing the policy conditions are met. With a mutual, claims payments are at the discretion of the Board of Trustees. The two solutions are not the same, and we would encourage local authorities to review all options in line with their individual risk appetite. Again, we would encourage councils to reflect the Total Cost of Risk in their considerations.

We don’t yet know how the proposed mutual will be structured and how it will operate in a very competitive market place. Zurich Municipal has been looking at Alternative Risk Financing, understanding how we can provide different solutions whilst at the same time ensuring local authorities have the insurance protection that they need. This is especially important when set against the backdrop of the increased severity of claims mentioned above. We have a number of proposals that we will be discussing with our customers as we move forward and would encourage any Council considering altering their risk transfer programme to look at all of the options available to them to ensure that the solution is the optimum programme for their council and aligned to risk appetite.

As ever, we welcome any new competition in the market place, which is to the benefit of the local government family, if it is truly competitive in spirit. We look forward to hearing the details of the proposed new mutual as they become available, which will enable the sector to assess the proposal based upon the evidence contained within the feasibility study and the intended proposition.

If you have any questions around this issue, please contact Amy Brettell, Head of Public Services, amy.brettell@uk.zurich.com or Rod Penman, Head of Sales, rod.penman@uk.zurich.com. Alternatively please get in touch with your usual Zurich Municipal contact.