There are some clear reasons for this
1. Normally they will have an insurance or education finance department with staff who are experienced in procuring and managing insurance for the council and schools.
2. It is a natural assumption that they have the capability to offer this service as a mutual type scheme affords relatively low risk or no risk to the council.
3. There is a desire to act in the schools’ best interests and offer schools the best possible value for money.
4. It keeps council staff employed in a valuable role for schools, rather than schools supporting large insurance companies.
5. They are able to save schools a sizeable quantity of money and can sometimes enjoy some of that benefit.
Please see the table below
|KEY SUCCESS FACTORS FOR BEST VALUE||UNOPTIMISED LA MUTUAL SCHEME||COMMERCIAL INSURANCE PROVIDER||OPTIMISED ESPHERA MANAGED MUTUAL SCHEME|
|Large Choice of Benefit Options||Unlikely||Yes||Yes|
|Realistically Rated Premiums||Maybe||Yes||Yes|
|Minimal Administration & Costs||No||No||Yes|
|Minimal Stoploss Premiums||Unlikely||Yes||Yes|
|Minimal Broker Profit Element||0%||+15-35%||0%|
|Minimal Underwriter Profit Element||0%||+18-45%||0%|
|Minimal Insurance Premium Tax (IPT)||0%||+ 10% (12% from June 2017)||0%|
This can be due to a number of reasons.
1. The scheme is out of balance as described above and needs to correct its rating mechanism.
2. The insurer is prepared to run a loss-leader premium in the hope that they will make it up in later years. Remember if an insurer can convince you to insure with them, that will weaken any mutual scheme and when there is no mutual scheme at all then their strongest competition is gone and premiums can rise.
3. They have added excessive overhead charges onto the scheme.
1. They do not wish to do so either due to lack of knowledge, experience or resources.
2. They don’t believe they can run it on a viable commercial basis. This is often the view when a scheme dwindles or falls into the red or they have a history of struggling to keep it in the black. The reality is that the management of the scheme was not optimised for market conditions.
3. There are not enough schools to participate. A scheme requires a critical mass of schools so that the risk can be adequately shared between them and to fairly apportion the necessary overheads. Ideally they will need at least 50 schools to achieve this.
1. They no longer have the necessary experience or capability.
2. They no longer have the resources necessary to operate a scheme.
3. They do not want the hassle for the perceived risk – although the risk can be practically eradicated by sensible scheme rules.
4. They are not able to charge a large enough admin charge to operate the scheme on a worthwhile basis.
5. They are not able to keep the scheme in the black – normally due to 1, 2 or 4 above.
6. Too many schools have left the scheme so insufficient critical mass – normally due to problems in setting scheme contribution levels too high for too many schools – quite often as a result of 1 or 4 above.
7. They are concerned about the legal implications of offering a scheme.
8. External commercial insurers offering generous inducements and rebates to the authority which make recommending external insurers a more financially attractive proposition than operating the scheme itself. This obviously benefits the local authority as they receive an income for little effort but disadvantages the schools as they have to pay significantly more for commercial insurance.
- Firstly, ensure you are comparing apples with apples. Very often the terms and conditions of a commercial provider’s scheme will not be as generous as a local authority mutual and will very likely have many exclusions, so take this into consideration. Some insurers are especially good at wriggling out of claims by requiring you to jump through many hoops before payment is agreed.
- Find out whether your authority scheme is optimised for accurate rating of premiums, a good indication of this is the percentage of primary schools that buy into the scheme, a high percentage indicates good rating techniques. If it is optimised well and the difference is not significant still choose the mutual if possible as the commercial option will undoubtedly increase in future years once they have you as a customer.
- Commercial premiums if much lower than a mutual generally indicate something very much amiss and the old adage still holds sway, if it looks too good to be true it probably is. If the difference in quotes is significant, it may be that you currently have low claims but one thing you can be sure of is that everyone has absences eventually and then you will be stung with a sharp increase. If you are heavily tempted to go with the loss-leading commercial provider remember caveat emptor. If you can’t resist, be aware that you are helping weaken the mutual fund and making it increasingly likely that you will eventually face much higher premiums if the mutual fails. If you can’t resist and feel a touch guilty, encourage the local authority to investigate using tools such as our Absence and Claims Management System and use our Absence Analysis and Contribution Review Service to improve their rating for contribution levels and hence competitiveness.
- If the majority of schools are getting uncompetitive quotes from the local authority it almost certainly means that the authority is requiring an excessive admin charge causing the scheme to struggle. It is time to look at options that avoid a commercial provider if at all possible.
It is very unusual for any 3rd party to have carried out any in-depth research into the different providers. Therefore the reason for most “recommendations” or “approved status” is because there is something in it for the 3rd party and they will not be impartial and acting in your interests. We would advise you to check if the 3rd party has received or will receive any funding from the provider, because if they are, not only is the recommendation not independent but you are paying extra for funding paid to the 3rd party. Choose your insurer based on your criteria and your knowledge not someone who has a vested interest.
The problems highlighted above mostly concern schemes that are too simplistic, inaccurate ratings for contribution levels and inaccurate and time-consuming administration which leads on to a plethora of problems both for you and the authority running the scheme. Local authorities can use our knowledge of good and bad mutual schemes to overcome the majority of these issues.