t Arthur J. Gallagher - Education Practice Insurance Procurement For Colleges PHILIP WEBSTER Executive Director - Education Direct Dial: Mobile: Email: 01924 234 028 07717 802 518 Phil_Webster@ajg.com
IS YOUR COLLEGE TENDER READY? The Local Area Review is changing the landscape for Further Education (FE) Colleges and may in turn challenge your current business model and the way you engage with stakeholders including for your insurance and risk management requirements. A renewed focus on achieving best value through procurement may help you to deliver both value for money and procure a fit for purpose insurance programme. This guide is intended to help you understand some of the current drivers within the industry and support good practice when procuring insurance. CHANGES WITHIN THE MARKET In recent years our Education team has seen positive changes in the market for Education risks. This increased participation is being driven by a number of factors, including specialist niche class insurers looking for new sectors and improvements in internal controls around Liability and Property risks. HOWEVER OVERALL COSTS MAY RISE IN THE FUTURE One of the reasons premiums have increased is that the rate of Insurance Premium Tax has risen to 12% from 10% in June 2017. Additionally the Justice Department announced recently that the Discount Rate (the calculation used to assess the net rate of return for investment by any claimant on large personal injury lump sum payments) which is applied to large personal injury claims will also change in 2017, with the current rate reducing from 2.5% to minus 0.75%. Whilst the true impact will not be known until insurers review their current exposures, indications are that rates will rise between 10% and 20% for any classes exposed to large personal injury claims including: Improvements in risk control Segmentation of the education sector Specialist underwriters in certain classes of insurance Soft market conditions in commercial sector Insurance Premium Tax Ogden Table / Discount Rate Investment Returns ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 2
CAN YOU REDUCE THE IMPACT OF MARKET FORCES? Whilst you may not be able to influence legislation affecting tax law or decisions by courts to change the way awards are calculated, organisations can manage the potential for premium increases and ensure insurance programmes deliver best value at all times. By adopting a more strategic approach to insurance procurement, both annually and at tender, organisations have the opportunity to take control and purchase cover that is appropriate and fit for purpose according to their current needs, rather than a repeat of existing covers year on year which may no longer be required or up to date. Historically, organisations have looked to insurance tenders to be the time when they review cover and the data provided to insurers, which can result in less favourable terms being offered by insurers. A more strategic, proactive approach can provide you with a better understanding of your risks and allow your organisation to embark on a tender process more easily if terms received from insurers are not acceptable to you the Public Contracts Regulations provide clear guidance on the need to retender contracts if there are significant changes from its agreed position. Whilst this is open to interpretation, if faced with an overnight increase in costs an organisation may need to consider whether the terms offered continue to deliver best value or if a tender will need to be undertaken. In this scenario, if you are not ready then a process that is both in line with best practice and likely to deliver the optimum outcome may not be achievable. Better understanding of your risk Easier to manage tenders Best Practice process Compliance with Public Contracts Regulations Deliver Best Value ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 3
CAN YOU PROTECT YOUR COLLEGE FROM ANNUAL INCREASES? Premiums are calculated by applying rates to exposure data. The rates are set actuarially and are a reflection of the claims history of insurers across the sector, modified to account for your own claims experience and exposures you have as an organisation. It is important that your claims and exposure data is accurate and truly reflects your current position. Old and inaccurate data may lead to higher premiums and potential repudiation of claims for failing to provide a fair presentation of your risks a duty required under the Insurance Act. Here are some key elements of exposure data that should be kept up to date and available at all times: Property Data Up to date property information, at least 5 months prior to renewal / tender and to include rebuild values, postcodes, number of storeys, construction and age details, fire / security alarm information, type of activities undertaken, last insurance reinstatement review date Claims Reviews Changes Claims experience data provided by insurers should accurately reflect your organisation s current position. Incidents that relate to activities no longer undertaken should be highlighted, as should large reserves on Liability claims. Higher Value Properties For locations with rebuild values in excess of 20,000,000, undertake Estimated / Probable Maximum Loss surveys. Property surveys provide general property data in an underwriter-friendly format. Claims Reviews High Value How certain are you that the reserve sitting against a high value claim is correct, can the claim be defended and if so is this reflected? Independent claims reviews can be undertaken to challenge insurers and include commentary in tenders to enable other bidders to consider the appropriateness of reserves. Business Interruption (BI) Reviews Review of revenue and increased costs of working to ensure they are adequate and not overstated, especially relevant to colleges emerging from Local Area Reviews and multi-site institutions. Review of mitigation controls i.e. BCP testing. Insurable Risk Review When did you last fully review your insurance programme? An insurance risk review is an excellent way of identifying whether your insurance programme is fit for purpose and supports your strategic objectives. Consistent / Insightful Data Historic claims experience data provided in spreadsheet format preferred by underwriters is essential. Breakdowns of relevant underwriting data, i.e. wage roll shown as categories, can also result in specific rates being applied. Risk Management Statement Robust risk management focused on reducing operational risk within your organisation will allow you to demonstrate that you are adopting a proactive approach, thus tempering potential premium increases. Higher Risk Data Provide as much information as possible about : marine, aviation, medical risks, research projects and international activities, plus details about Professional Indemnity policies to ensure quotes are accurate and competitive. Timetable Develop a timetable which includes key activities, roles and responsibilities the process of completing this document will help you to consider the framework / procedure you will use and the key dates within that process. ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 4
PLANNING YOUR TENDER ROUTE TO MARKET Public Procurement regulations contain strict rules that most FE colleges will need to follow when procuring their insurances. There are a number of routes you can take you should consider the options to ensure you achieve the desired outcome. Whilst all outcomes should deliver value for money the mechanism you choose should best fit the particular needs of your organisation. OPTION DESCRIPTION PROS CONS OWN OJEU* TENDER College conducts its own OJEU tender. Open procedure most commonly used, Competitive Procedure with Negotiations (CPwN) has gained favour with some organisations. Compliant Comprehensive Various structuring options Whole market engagement Ability to negotiate best position (CPwN) Time consuming Procurement experience required Understanding of insurance / wordings required Lengthy process, particularly CPwN CCS FRAMEWORK Previously known as GPS, this Framework allows users to appoint an independent advisor who then works with the College to conduct a market tender. Access to independent advice Easy to access and use Good spread of markets Compliant Payment of 0.75% of premium and fees to CCS for use of facility by insurer / broker CPC FRAMEWORK A multi-supplier Framework where users determine their own requirements and request quotations accordingly. Compliant Focused on the FE College sector Limited providers Tender managed by FE College No ability to combine providers Payment of a percentage of premium to use REGIONAL FRAMEWORKS Devolved authorities have established Frameworks for users within their geographies. Compliant Focused on the specific geography in question Limited providers Restricted advice / support *Official Journal of the European Union ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 5
HOW DO THE FRAMEWORKS OPERATE ajginternational.com The following charts demonstrate how the two largest Frameworks operate. The CCS Framework gives users the opportunity to appoint an independent broker to run the procurement exercise and access all Lot 1 insurers on their behalf, whilst CPC Framework provides access to a limited number of brokers who are already linked to a specific insurer or direct insurer. CCS INSURANCE SERVICES FRAMEWORK College 27 Lot 1 CCS Broker Broker Insurers College College gathers relevant information from various sources and decides on the cover it requires. College appoints a broker on the CCS Framework, either direct appointment or via further competition Broker issues information to Lot 1 insurers Broker receives quotes from Lot 1 insurers Broker evaluates and submits recommendations to College College reviews recommendations and decides on cover CPC FRAMEWORK Broker 1 Insurer 1 Broker 1 Broker 2 Insurer 2 Broker 2 College Procurement Body Broker 3 Insurer 3 Broker 3 College Broker 4 Insurer 4 Broker 4 Direct Insurer College gathers relevant information from various sources and decides on the cover it requires. College submits information to procurement body Brokers on the Procurement panel receive information and issue to their specific insurer, or information sent to direct insurer Brokers receive quote from their specific insurer Broker submits terms to the College, or quote received from direct insurer College evaluates all terms received and determines cover ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 6
WHY SHOULD YOU SELECT AN INDEPENDENT BROKER? Whilst it is possible to conduct a tender without professional advice, some insurers will only transact a business through a broker. This is because they do not have the infrastructure in place to manage day to day support for policyholders and rely on the broking sector to do so on their behalf. Direct underwriters have made this investment so they do not need brokers to work on their behalf however, this means that they can only offer comment on the insurance cover they provide and are unable to offer advice or recommend coverage. Some areas to consider when choosing a broker: Experience: ability to guide you through insurance procurement in accordance with Public Procurement Regulations, reducing the risk of non-compliant processes which can result in legal challenges, contract delay, additional costs and potentially payment of damages; Market authority: presence in the market to deliver meaningful results. Appointment of a broker that has experience of the FE sector and ability to articulate your risks to the market; Access to all available markets: access to all available frameworks and conversant with the needs of different procedures under the regulations. As a Contracting Authority you must own the process irrespective of whether you appoint a broker or not. Use of frameworks can reduce the risk of failing to ensure the principles of the Public Contracts Regulations are met as the appointed insurers have already passed a selection process and offer a compliant route to market. The CCS Framework goes one stage further by providing a number of brokers who have passed a similar selection process thus demonstrating they have the ability and experience to manage procurement exercises. The CCS Framework has the added benefit of allowing you to make a direct broker appointment, avoiding the need to run a competition, saving time and money whilst being compliant with procurement regulations. The right broker will be able to advise on the most efficient and cost effective mechanism of procuring the insurance you need. Broker fees are unlikely to require you to run a formal tender, but where your Financial Regulations require you to undertake a competitive exercise you may wish to consider the following: Cost What fees are being proposed and is this all the broker will earn? How are these structured? Are these sustainable and committed to, over the long term? Account Management How will your account be managed? What level of experience and knowledge does the nominated account team possess? Added Value Does your broker provide tools and support to make your life easier? How do these benefit you? Procurement Support What experience does your bidder have of procurement and the structure you ve committed to? ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 7
KEY TENDER REQUIREMENTS In addition to ensuring the availability of good quality data the following information may assist with attempting to maximise the benefits when embarking on a tender process: EVALUATION CRITERIA Public Contract regulations recommend contracts should not be awarded on price alone unless goods / services are readily available and can be defined with certainty. It is accepted best practice when procuring insurance that bids are evaluated on price and quality, but to achieve this you must first identify what is important to you and ensure the qualities you score deliver your desired outcomes. For example: Claims handling: how efficient is the process, are there service guarantees, relevant experience, involvement in the claims handling process? Resources: what s available to manage your account? Additional value: apart from insurance cover what do you need? Do you value risk management support, what about management information etc? ITT STRUCTURE Colleges generally procure a complex mix of covers. Few insurers can offer the complete range of coverage you may require, so if you structure your tender in such a way that you ask an insurer to underwrite all your requirements you will limit your options and may not deliver best value. Splitting a tender into Lots will allow niche markets to engage with you and allow you to benefit from wider covers. Core covers may include: property damage, liability, motor, engineering, computers, directors and officers and professional indemnity. Wider covers include: marine, aviation, cyber, terrorism, contractors all risks and environmental. Some markets will offer package discounts for placement of more than one Lot, which may seem attractive but can result in being forced to accept substandard cover in certain areas to benefit from lower pricing. PRE-MARKET ENGAGEMENT In the build up to a tender it is important to ensure the market is aware of your risk and fully understands the process they need to follow to bid for your business. A broker can help support this process by arranging pre-tender engagement sessions with key markets. An approach to adopt includes: Gathering summary exposure data in a consistent format to share with interested parties; Respond to questions and commit to including information in the tender to help them underwrite the risk; Issue Prior Information Notice (PIN) inviting interested parties to make contact with you, providing a level playing field to all potential bidders. If you meet with underwriters before the formal tender process is launched you can ensure your risk is looked at first when it arrives on an underwriter s desk! ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 8
WHAT SHOULD BE YOUR GOAL? TENDER CHECKLIST In tendering your insurances you should aim to procure a programme that is fit for purpose and delivers best value. It should: DO YOU HAVE? YES NO A timetable which details all actions required to go to tender? BE BASED ON YOUR APPETITE AND TOLERANCE TO RISK Property spreadsheets including: Sums insured by property split between buildings, contents and computers Postcode or longitude / latitude coordinates Construction and age details Details of fire alarms and type The activities taking place in the building Date the last insurance reinstatement cost review was undertaken Estimated Maximum Loss (EML)/Probable Maximum Loss (PML) reviews for locations valued at 20,000,000+ MANAGE THE RISKS YOU CARRY AND THOSE WHICH CAN REASONABLY BE EXPECTED TO ARISE IN THE IMMEDIATE FUTURE Property surveys for locations valued at 20,000,000+ Business interruption sum insured review SUPPORT YOUR ORGANISATION S OBJECTIVES BY PROVIDING FINANCIAL SUPPORT AND ADDITIONAL SERVICES TO MINIMISE DOWN TIME AND CONSEQUENCES OF LOSS Business Continuity Plan evidence Claims analysis and review Gap analysis review ARTHUR J. GALLAGHER EDUCATION PRACTICE INSURANCE PROCUREMENT FOR COLLEGES 9
Arthur J. Gallagher Education Practice The Gallagher Higher Education Practice Group is committed to the greater mission of risk management. We re not just specialists in coverage and prevention we also dedicate ourselves to understanding and furthering the interests of higher education. Colleges and universities face a unique set of challenges when it comes to risk management. Few other businesses have exposures as broad as those you grapple with everything from campus security, employment practices, student life and vehicle use issues to studying abroad, environmental hazards and intellectual property rights. We are committed to providing each client with the resources needed to manage their risks effectively. For more information, visit us at www.ajginternational.com This document is not intended to give legal or financial advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this document we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained. You should not act upon (or should refrain from acting upon) information in this document without first seeking specific legal and/ or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this document, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein. Arthur J. Gallagher Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 7th Floor, 55, Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909. FP480-2017 Exp 31.07.2018