Agnieszka Gajli 11 November 2020

Local government and the challenges faced when obtaining insurance

The Institute for Fiscal Studies recently found that local councils face a £3.1bn gap in funding as a result of financial losses incurred due to COVID-19. Income has decreased from a multitude of directions, including through closed car parks and leisure centres, lost business rates, and council tax holidays, with outgoings simultaneously increasing through PPE and social care shortages.

With the imposition of a new national lockdown for the UK, local authorities will be once again required to look for new ways to increase revenue and insurance solutions could play an increasingly important role.

It has been acknowledged that there were few organisations prepared for the pandemic. After all, something that was near impossible to see coming is difficult to mitigate against. One of the only institutions to have invested in pandemic insurance was Wimbledon, who are now set to receive an estimated £114m pay-out after cancelling their tennis championships. Through no fault of their own, local authorities have experienced exponential financial losses during COVID-19, but a greater appreciation for insurance can help to address any additional future holes in funding.

As we move into winter, local councils are being met with further unique challenges. For example, the costs of extreme weather and flooding across the UK are anticipated, particularly across areas like Hebden Bridge, a village in Yorkshire, which has been affected by sustained flood damage each year. We have already seen isolated flooding in West Yorkshire at the start of this Winter that has impacted local infrastructure, incurring sunken costs on repairs and disruption to local communities. Carefully planned insurance agreements can help to negate some of these costs and ensure that budgets have capacity in anticipation for such natural events.

Further anxiety surrounds the recently announced second lockdown, and the previous tiered regional lockdown that may return after, as these present their own risks, with local leaders such as Andy Burnham already voicing concerns regarding funding and the potential long-term impacts to local economies. Coupled with changing ways of working, and the introduction of other issues and considerations that have come to the fore for all employers, from occupational health problems to data security and GDPR, there are multiple areas of consideration when it comes to insurance renewals.

In the short term, the priority is inevitably to get through the current period as unscathed as possible. However, looking forward, councils will have to navigate a changed insurance landscape and difficulties assessing risks due to the impact of COVID-19.

Before the pandemic, insurance decisions might have come from a money-saving mindset. At this time, it would be misguided to go into discussions expecting to negotiate premiums. Instead, there should be a focus on thoroughly understanding risk. Organisations should be planning for vastly different insurance procurement processes and conversations.

To prepare appropriately, procurement teams need to take on a collaborative approach. Organisations need to think frankly and strategically about future risk and sustainability. Councils, at the heart of local financial and societal pressures, should engage with each other, their stakeholders, and suppliers to understand the evolving potential risks and changes to their budgets and communities. Insurance agreements should go beyond a contract renewal, and look at what has changed, what might change, future financial projections and how to manage their hierarchy of risks effectively.

Internal risk management also has a role to play, and arguably, too few organisations implement measures stringently enough. Working out risks and their likelihood, and putting plans in place to deal with them appropriately is ever important: by being knowledgeable, and upfront, about the future your organisation could face (and in some cases, expects), insurance brokers will be more likely to deliver realistic quotes and offer a service that meets the requirements of the risks the organisation faces.

It’s also important that all public sector organisations look to receive appropriate support and guidance when seeking a new insurance package – insurance and all of its factors can be difficult to navigate on your own.

Organisations can offer support and guidance to local authorities whilst they navigate these tough times and complex markets, coming armed with specialist knowledge and supplier relations. Assistance can be found in the way of facilitating conversations between councils, insurance brokers and insurers and helping organisations in understanding the issues they might face when in discussion. Without deep understanding and honesty as a rule, it can be expected that these conversations may fall apart.

Moving forward, wider public sector organisation departments can support their procurement teams by working strategically, and as openly as possible, with the relevant knowledge to acquire appropriate insurance.

Agnieszka Gajli is category manager for corporate services at YPO

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