Thursday 20 October 2011

Are academy conversions creating opportunities for insurance companies to fleece the taxpayer?

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Are academy conversions creating opportunities for insurance companies to fleece the taxpayer?

Local Authority schools pay insurance as part of a block policy in order to achieve economies of scale. Once a school becomes an academy it is responsible for its own insurance.

Using the Freedom of Information Act we have gathered evidence that shows that insurance companies are using academy conversions as an opportunity to charge double, treble and even quadruple costs.

Shockingly this does not disadvantage the academies themselves because all the cost of the insurance is passed directly to the YPLA and thus the taxpayer.

For example, a Suffolk school that recently converted said:

Before conversion to Academy, insurance costs were £36,236 and after conversion increased to £57,435. The main reason for the increase is because the local authority had a block policy for all schools therefore the insurance company were able to reduce costs.  It may be possible in the future for academies to join together and purchase a block policy and reduce costs also. Please note that insurance premiums are not paid from Academy funding but from the YPLA.”

 

Another academy responded:

“Pre-academy £20k

 Post Academy £63k”

 

Yet another stated:

 

“Our costs for insurance are expected to increase considerably after conversion: 2010/11 cost via LA £20,145 (excluding staff absence and maternity insurance). We anticipate as an academy the cost will be around £84,000. The reason for this is that our LA substantially under-insured the buildings (this was a planned decision as they self-insured a large percentage by agreement) so our buildings insurance was subsidised by the LA, also there are economies of scale in insuring a whole county of schools.
We are using the same insurer, Zurich as the LA I don’t know of another in the market for school insurance. At the moment the YPLA will refund insurance costs but I don’t know whether this position will last.”

 

And another:

 

Our Insurance costs pre-academy were:  £8,305

£2,828 (Buildings/Fire)

£2,382 (Combined Liability)

£2,895 (Damage, Loss, Risk Pooling)

£200 (Hirers Liability)

Using the same insurance company, but obviously not through the LA, our insurance cost now is: £25,103.49

 

We are putting in more FOI requests. We are also asking if Local Authorities have seen a reduction in their premiums, and if so, by how much.

If this scam was repeated across the 1,o00+ schools that have become academies, the taxpayer could be paying millions more for school insurance. The Secretary of State for Education needs to come clean about the figures.

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5 comments

  1. Steve Jones said:

    Hi, In regards to your comments above, we as a broker are very active in the Education department and when approaching a prospective academy find that we give the best advice on what cover they require and to make sure all eventualities are covered and so price although important will be put against the need and demand of each individual Academy. When we are out to market on obtaining premiums we are normally up against no comparison and as such Insurers dont have any where to pitch their price and as such no bargaining happens. Out of all the academies that have been paid for by the LA is there actually any that have saved money ? I would like to think there is some out there. But if anyone wants to put us to the test and see if they can save money for the LA or themselves on our Education scheme then please do not hesitate to contact me.

    Thanks

    Steve Jones
    07584489546

    12 October 2011 at 9:19am
  2. Jane said:

    Steve: good try! However, the insurance business must have pretty good figures on what claims have been made in the education field and the cost of them and should, therefore, be able to assess risk.

    A hike of £20,000 simply smacks of opportunism and profiteering.

    12 October 2011 at 12:25pm
  3. Paul Crilly said:

    Jane,

    Regarding your comments above, we too are a broker in this sector, and as most commercial brokers, have become increasingly active in the Education sector, more so lately turning from private schools because of the growing demand from the Acadamies’ situation. There are a number of new facilities available from Insurers and this will increasingly create competition which means prices should fall in line with those previously enjoyed. Each risk is assessed (or should be) on its own merits and of course those schools with good process and risk management in place will benefit from more competitive prices. We will visit each school, regardless of where they are in the country and will also have the actual underwriters in attendance to get a real feel for the needs of the school and give the best advice on what cover they require. Price is always a factor, none more so than in the current economic climate so we always aim to provide the necessary at the most competitive prices available. It could be wise to join together in search of bulk discounts, but you also need to consider schools with an equally good record on risk management.

    As a snap shot we can investigate and quote on a schools behalf (and at no cost for a quotation) the following if it’s of interest:-

    We have a Colleges and Schools insurance programme which provides a choice of covers that can be designed to meet the asset and liability protection requirements of most establishments.

    Material Damage Protection against ‘All Risks’ or fire and selected
    perils for property including buildings, contents and fixtures & fittings

    Business Interruption Cover for reduction in gross revenue and/or
    additional cost of working suffered in consequence of material damage

    Specified All Risks

    Wide cover for high value, portable items
    Computer: Specially designed cover for computer equipment
    and records

    Money
    Cover for loss of money and personal injury arising from robbery or assault

    Fidelity Guarantee

    Protection against loss of money or property
    through theft or fraud by employees

    Employers’ Liability
    Covering legal liability to employees for death,injury or disease arising out of their employment

    Public Liability
    Legal liability insurance cover for third party injury or property damage including many additional benefits such as libel and slander cover as standard

    Professional Indemnity
    Protection against claims for damages brought against the college or school arising from dishonesty or breach of professional duty
    Governors’ Indemnity
    Protection for governors against liabilities incurred
    as a result of breaches of duty, trust or authority
    arising out of their responsibilities as officials

    Call me (Paul Crilly) on 02071732125 should you want to discuss this further or have any queries.

    14 November 2011 at 4:53pm
  4. Jane said:

    Paul: Nice try! Funny how commercial interests seem to be monitoring and using our site to push their wares and justify themselves. Perhaps your organisation would come clean and pay the Anti Academies Alliance the usual rate for advertising, instead of being cheap skates. I’d say £2000 would about suit, don’t you.

    PS I think in your eagerness to sell yourself, you have completely missed the point!

    14 November 2011 at 8:46pm
  5. Holly Markham said:

    Hi Jane,

    This is an interesting article and I appreciate your concern with this matter.

    Schools previously insured via the Local Authority of course enjoyed financial benefits of Bulk Purchasing. However one of the problems with bulk policies are that insurers are not always fully aware of the individual requirements of that school. Every school is completely unique, with different risks, levels of management, health and safety and activities which will all affect the way in which insurers rate premiums.

    I am not sure if you are aware that the Local Authority can charge around a £5,000 fee for simply placing cover, with the same insurer year on year. This does not demonstrate best value. They are also not regulated by the FCA and are an EPF, which means they can only offer very limited advice. Exempt professional firms are not authorised by the FCA and consumers will not have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if things go wrong.

    How can we be entirely sure that the LA are putting in place the right cover to safeguard the school and it’s pupils? Surely this is the most important thing to be concerned about.

    Working with many schools and academies, I have mostly found that schools leaving the LA have made vast savings on their insurance premiums. One example is a school who was paying £115,000 for their cover via the LA, however by working closely with the academy to understand their risk and carrying out a procurement process to meet EFA guidelines we were able to bring their insurance costs down to £58,000. That’s a saving of over £57,000!

    “Using the Freedom of Information Act we have gathered evidence that shows that insurance companies are using academy conversions as an opportunity to charge double, treble and even quadruple costs.”

    I appreciate the responses you received from your survey alarmed you, however working in the profession I can assure you that there are no insurers that would do this. As professionals, both insurers and Brokers are regulated by the Financial Conduct Authority and maintain and adhere to the highest levels of ethical conduct.

    There could be several reasons as to why premiums have increased, which I am not sure you investigated further:

    a) The local authority had previously provided inadequate cover
    b) The school had a poor claims history
    c) If the school has not carried out it’s duty of going through the EFA Procurement process (OJEU tender process for schools exceeding a premium threshold of £173,000) to demonstrate best value (From the sounds of the comments none had used a broker to help them carry this out, which will make a significant difference.

    If you would like to speak to me about any of your concerns, please feel free to call me.

    Kindest Regards

    15 November 2013 at 5:08pm