Government counts cost of poor insurance arrangements

Monday 27 April 2020

The government is exposing itself to more financial damage from claims against it, due to poor insurance arrangements, a new report has found.

Penned by Comptroller and Auditor General (C&AG) Lynn Pamment before the pandemic, the report exposes a lack of governance and oversight, as well as the absence of a robust process to identify existing and emerging risks for which insurance would be necessary.

Her report explains that the government uses both external insurance – the cost of which increased by £2.2m for 2019/2020 due to higher premiums - and self-insurance via an Insurance Fund to mitigate risk. 

Reasons that the government might have to use its insurance could involve pay-outs to employees or members of the public for accidents on government premises or legal claims against the Health Minister for operations or other health procedures going wrong, for example.

Pictured: Lynn Pamment, the Comptroller and Auditor General.

Ms Pamment found that, until recently, there had been little governance and oversight of the States’ insurance arrangements. 

While the insurance function sits within the recently established Risk and Audit Directorate of the Treasury, the Risk and Audit Committee's list of responsibilities has no reference to insurance. She also found that there is no separate insurance board, committee or equivalent to consider strategic and key operational issues. 

While Ms Pamment welcomed the drafting of an ‘Insurance Strategy and Improvement Plan’, she said it did not include areas she would normally expect to see in a strategy for “a more mature insurance function”. 

“The States have recognised that they face significant challenges in developing their arrangements for insurance and have drafted an ambitious and forward-looking Insurance Strategy and Improvement Plan. This is a timely and much needed document,” Ms Pamment wrote.

“However, the effective implementation of the Insurance Strategy and Improvement Plan will be dependent on ensuring that the insurance function has the capacity to deliver it and is supported by stronger governance and oversight arrangements for insurance.” 

Pictured: Insurance claims are not analysed on a regular basis.

The C&AG also noted that the government does not have a robust or systematic approach for identifying existing and emerging insurable risks.

Departmental risk registers are not being used and claims are not analysed on a regular on a regular basis.

Ms Pamment noted the “good practice” information available for claims made against the Minister for Health and Social Services, but added that overall the Government has “poor management information on past and current general insurance claims”.

“This means that the States do not have up to date information on potential liabilities or the means to identify and learn from the past and from new and emerging issues,” she explained.

Furthermore, the C&AG said there is no incentive for departments to to improve their risk management arrangements or seek to reduce the number or financial impact of their claims.

Pictured: The C&AG criticised the tendering process for insurance.

In her report, Ms Pamment also criticised the tendering process for insurance, which she described has “having fallen short of best practice”, potentially contributing to an increase in premiums.

When a three-year contract was negotiated with the existing insurers in 2016, no open tendering process took place – contrary to the requirements from Financial Direction.

Ms Pamment discovered that exemptions sought for the extension of the contract in 2017, 2018 and 2019 were made either immediately before or after the renewal date. 

“I would expect exemptions from procurement arrangements to be obtained in a timely manner,” she wrote. 

“Where an exemption is not obtained before the start of a contract or date of renewal or extension, I would expect a breach to be declared.” 

While a full tender process took place during 2019, Ms Pamment said it contained a number of deficiencies which may have also contributed to the rise in premiums. 

Commenting on the findings of the report, Treasurer Richard Bell said: “While there is still much to do, I would like to thank the C&AG for reviewing our insurance arrangements and acknowledging the progress recently made with the development of our new Insurance Strategy and Improvement Plan. 

“We welcome the recommendations made by the C&AG to help improve our plan. These will help us better manage our costs and future approach.”