With PR19 fast approaching, now is the time to review your risk transfer programme to ensure the business has an efficient and cost-effective insurance programme in place. Jonathan Swainbank, of water industry specialists Kingsbridge Risk Solutions, elaborates:
Cost efficiencies
Whilst the regulated water industry prepares their business plans for the next 5-year price period, they will be looking at their own internal efficiencies from within their businesses and those in their partner framework and contractor networks. As a business concentrates on the day to day work, one area that can be overlooked is the insurance programme. Two recent increases in Insurance Premium Tax (IPT), demand that insurance premiums paid by firms represent an optimum combination of price and cover.
Are your insurance values up to date?
It is very easy to overlook updating the values of your buildings, contents, plant and machinery sums insured, with some assets being disposed of but left on your insurance schedule. It is advisable to review every six months to ensure deletions, and more importantly, that assets acquired are notified to your insurers. Bear in mind that reinstatement values for buildings need to be frequently reviewed for adequacy, considering building regulations and modern methods.
Insurance Premium Tax (IPT)
IPT is currently at 12%. By reducing your premium spend, you are therefore reducing your tax liability. By retaining more risk within your business, i.e. by increasing your policy excesses, insurers will reduce their premiums accordingly. It is advisable to review with colleagues the amount of risk the business can retain comfortably whilst not placing the business at risk. Risk optimisation studies help identify the level of risk a business can retain without adversely affecting the financial strength.
Managing your motor vehicle risk
With the cost of motor accidents continuing to increase in terms of both personal injury and property damage, driver training, vehicle tracking and on-board cameras are effective tools in managing and reducing the risks the business faces. Whilst staff may complain of ‘big brother’ watching them, these driver aids encourage a competitive spirit in not being a poor driver against their peers whilst contributing to using the vehicle in the most efficient manner, i.e. driving responsibly and avoiding hard acceleration, high cornering speeds and harsh braking. Insurers are very keen on such risk management initiatives, with premium reductions being available, as well as assistance with funding in certain circumstances.
For those with a high premium spend
As the business grows in terms of turnover, so does the ability to self-insure certain risks faced. Seek opportunities to shift your risk transfer programme to have less reliance on external insurers in areas of low value but high frequency claims by paying premiums to your own captive / cell insurance company. The term “captive” or “cell” is used to describe the process by which the underwriting profit and investment income from premium and claims reserves are captured for the benefit of the parent.
Most captives/cells are established in a domicile that has appropriate legislation and infrastructure to support a small insurer.
Ensure you have the right cover for your business
The water industry, like others, has unique features that need to be recognised and understood, a ‘one size fits all approach’ is not always suitable.
For example, those in the industry that are carrying out water quality and testing services need to ensure their Public Liability Policy includes cover for claims arising out of Legionella disease. Similarly, for process contractors’ certain policies will either exclude or restrict pollution coverage.
If your business provides advice or charges a fee for professional services, such as the design of a new process, Professional Indemnity insurance is an absolute must to protect the financial integrity of the company in the event of any advice related claims.
Sufficient policy cover
Finally, should your business trade be severely affected following major damage to the premises or processes, having the correct level of Business Interruption cover in place, with an indemnity period sufficient to allow the business to recover is vitally important. Between 60 and 70% of businesses that suffer a major fire do not reopen due to inadequacies in their insurance cover and values.
A recent change to the levels of compensation payments injured parties can now receive, introduced by the UK Government, businesses should review the levels of liability insurance they purchase, as in some cases, potential pay-outs have increased by over 100%.
