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Dec/Jan10/11 Insurance & Risk roundtable: The specialists

Written by Andrew Holt
December/January 2010/11

The specialists: The Charity Times Insurance & Risk Roundtable

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The expert panel:

Mike Locke is director of public affairs at Volunteering England, a role he has held since May 2008. Mike’s experience of voluntary organisations and voluntary action dates back to the early 1970s through involvement in community organisations in the North Kensington and Notting Hill area of London. He has also worked as a researcher and teacher with voluntary and community sector issues since the early 1980s.

John Chesters is commercial and franchise director at Blue Sky Development and Regeneration, a social enterprise set-up to give paid work to people coming out of prison and enable them to move into long-term employment. Over the 5 years since it was set up, it has employed nearly 300 ex-offenders – more than the entire inmate population of some of Britain's prisons. And of these, less than 15% have re-offended – a quarter of the national average.

Cath Lee is chief executive of the Small Charities Coalition and has worked in the voluntary sector for 18 years, mostly for national charities including RNIB, Crisis and Shelter. She has undertaken a variety of roles including marketing, research, project management and regional management. Her most recent role for Shelter was as a programme manager resulting in the introduction of online information and advice services for young people and the professionals who work with them.

Brian Shorten is IS BCP, Risk & Security Manager with Cancer Research UK (CR-UK). Since moving into Information Security 20 years ago Brian has worked with banks, an insurance company and a Telco. Brian is a co-founder and Chairman of the Charities Security Forum (CSF) which has established itself as the premier group for information security professionals working in the charity sector.

Anne Hudson is business development manager at Markel UK, a post she has held since spring this year. Anne previously spent five years at Ecclesiastical Insurance, holding the positions of regional manager, national broker relationship manager and latterly, as head of business marketing. Before that, she spent over 20 years working for a range of insurers, in a number of roles, including as product development manager at AXA and distribution risk manager at Lloyds TSB Insurance.

Simon Hickman is managing director of Access Insurance, a successful, award winning, broker specialising in risk management and transfer solutions to the third sector. A wide range of charities and not for profit and voluntary organisations of all sizes are clients.He is a Chartered Insurance Broker and Fellow of the Chartered Insurance Institute. He describes himself as a forward thinking, customer focused expert who embraces technology. His company won the 2010 Charity Times Awards Insurance Services Award.

Paul Emery is head of community and social organisations at Zurich. Paul started his career with Zurich in 1988 as a business analyst and thereafter worked as a project manager and Key Account Manager where he was responsible for maintaining relationships with several of Zurich’s largest intermediary partners. In 2001 Paul began working in Zurich’s Life business where he remained until 2005 when he took up the newly created post of Head of Charities and Social Organisations.

Mark Ingram is a Chartered Insurer and is head of insurance operations at charity insurance specialist Ansvar Insurance. He has more than 20 years experience of being associated with the not-for-profit sector which includes spells as marketing director for the London Philharmonic Orchestra and director of marketing & fundraising for The Salvation Army. He also writes and speaks frequently on a range of charity and insurance related issues.


The Roundtable Discussion: The Specialists

The control of risk is vital to the sector. ACEVO’s chief executive Stephen Bubb has written in Charity Times how the charity sector enjoys a good reputation and therefore support amongst the public for its work, but it just takes one bad case, and that reputation could come under question. This, reputational risk, is also only one aspect of risk charities should be aware. Many others need to be considered.

What then is the state of the sector’s risk management overall? Are Charities fully aware of their risk exposures? Scanning the environment the insurance representatives analysed the situation first. Paul Emery noted there is an increasing awareness of the management of risk, noting there is also a lot more risk coming the sector’s way.

“As the cuts bite, as services get outsourced into the sector, as the Big Society builds and grows, there will be a shift in risk from local authorities to the charity sector.” Risk is, he also noted, for charities a “boardroom exercise” at the moment and the key risks facing charities are not necessarily trickling down to the frontline with a focus on governance rather than embedding risk management in the organisation so that it trickles down to the frontline. “But we are in a better place now than we were two years ago,” he added.

Risk transfer mechanism
Mark Ingram agreed there had been a growing awareness of the risk facing charities. "Central Government and Local authorities increasingly see the charity
sector as a more cost-effective means of delivering services but it is also a convenient risk transfer mechanism. And whilst some charities get excited about additional statutory funding for extra activities, what they don't always realise is they are taking on extra risk. Therefore, there are challenges; but I don't think the sector is homogeneous in the sense that it's difficult to generalize."

Here he noted a cultural difference between larger and smaller charities to risk as an example where larger charities may have dedicated resources to manage such issues. Anne Hudson observed there is a challenge to get qualified trustees to engage and understand the issue of risk.

“The Charity Commission has found that 53% of charities find in difficult to recruit trustees. As a consequence some boards of trustees are a lot of enthusiastic amateurs, rather than professional people. And if someone comes to the board with a professional background, they are often overburdened and overwhelmed with the responsibilities they have to take on board, relegating risk assessment to a low priority.”

Simon Hickman noted charities are much more aware of risk in terms of their financial risks because of the need to ensure reserves were adequate and financial reporting, but questioned whether they were as aware of risk on an operational level. "The larger charities do employ risk managers, but smaller charities do need help to look at risk issues."

Cath Lee picked up on the point of the sector not being a homogeneous whole, as noted by Mark Ingram. “The sector is not homogeneous, but also the small charity world is not homogeneous.” There is, she noted, a big difference between a charity with an annual income of £1million and one with £10,000, and
fifty per cent of the Small Charities Coalition members are under £50,000.

“For them, I am not sure they are particularly aware of what their risk exposures are: their main driver is to deliver their mission, and they don’t always look at the full range of issues they need to comply with”

Absolute minimum
Small Charities Coalition members were recently asked about their understanding of regulation and most admitted it was poor. “Health and Safety and employment law came out better, but the message was that smaller charities do the absolute minimum [in terms of risk assessment],” noted Lee. But she questioned whether being small,with fewer assets, could mean they have less of an impact if anything goes wrong.

Mark Ingram picked up on this last point. “The activities of smaller charities can be as diverse and onerous as larger ones in terms of risk exposure,” he contested. For example, smaller charities are equally likely to offer services such as professional advice, counselling, caring for the vulnerable, through to needle
exchanges and employment training.

Hickman noted two of his new clients around the £1million income mark, had not thought about risk issues in terms of business interruption and professional indemnity. “So it is not just the smaller charities who have difficulties in realising
the risk exposure,” remarked Hickman.

Difference of scale
In terms of the shift away from government agencies to charities and voluntary groups taking on work and therefore risk, Mike Locke noted that voluntary groups had been used to this responsibility already. “There is plenty of experience in the voluntary sector, so it is not as if something new is happening. The difference is in scale.”

He also echoed the points that the sector is not one homogeneous entity, and reiterated the difficulty of smaller organisations dealing with all sorts of external issues including risks. “What I would like to raise though, is not necessarily the awareness of risk, but the reality of charities getting to grips with risk: whether there is an over sensitivity to risk.”

To this, there is an upside to risk noted Emery. “Those organisations that are able to identify the risk, manage it and innovate will take advantage of this great change. Larger charities are likely to lead a consortia of organisations doing the delivery, so smaller ones will have to think about their role in the supply chain.”

Brian Shorten noted on a charity jobs level his charity are busy with risk and insurance. “We have an experienced risk manager, so our coverage of risk and
insurance is about right, because we have someone looking at it all the time.
Not all organisations do.”

Hudson introduced a new risk: TUPE, The Transfer of Undertakings Regulation
(Protection of Employment). “We need to recognise the new risks posed by local authorities shifting social welfare to the Third Sector. Often it is the most challenging areas that are outsourced, complete with staff. This poses TUPE risks for charities and insurers.”

In this way, John Chesters, director at the social enterprise Blue Sky Development and Regeneration is at the cutting edge of many risk issues, employing ex-offenders. “We are not at the size we can employ an independent risk manager, but we are very risk aware of what we do. TUPE is going to be an interesting one. Before taking anyone on, we assess the risk they pose to the business.” He then challenged the insurance companies to rise to the challenge of providing cover that suits them, as it had been difficult to get cover on some aspects of the organisation’s work.

Paul Emery agreed that insurance companies have a responsibility to develop propositions that meet the needs of the sector as a whole. “But I think specialist insurers are already in that space.” Mark Ingram added: “We have to accept it is a broad sector and we are expected to take on those exposures. Having said that, we also have a right to exactly what a charity does and to know that strategic and operational risks are being managed properly.”

Cath Lee noted that for smaller charities it was a case of knowing what is out there. “A small charity will go to their local supplier. Whether those needs are covered is up for grabs.” One issue she cited from an insurance perspective, was the language used could sometimes be a barrier. The challenge noted Emery, was reducing the red tape, while having enough rigour in dealing with the risk element.

Moreover, insurance company regulation and good business practice means having to abide by adhering to “treating customers fairly”, and part of that is product development and distribution. There is also the Charity Commission Accountancy Framework within this. Hudson noted dealing with a respected registered broker can see charities over many hurdles in regards of suitable
policy advice.

The specialists
Expanding on this, Hickman noted what Cath Lee highlighted in terms of consulting the local broker may not be the best route, because they may well have a limited knowledge of the charity market. “This reinforces that charities
should go to a specialist,” added Emery. “What becomes important is that they
are buying a specialist proposition. If a generic package is bought, you might
be stuff you don’t necessarily need.”

In this way, Hudson noted that those charities who do not have the most appropriate product are most at risk. “Very small and office based charities may be suited to an off the shelf charity package; whereas more complex charities should seek independent advice on their insurance needs.”

Mike Locke noted there were occasions when charities get different advice from different insurers in regards to different challenges facing volunteers. “We have
had cases of people being told they need business insurance for their role as volunteer drivers.” This can be resolved quickly, noted Emery, it is once more about consulting someone who knows, while accepting there could be more clarity from the experts.

Then Chesters noted: where do charities go for advice? The first thing charities often do is call a call centre and get little constructive help from call centre staff. "But as part of our risk management exercise we can go through the charity finding out what their exposures are and match the policy accordingly," noted Hickman.

“Much does depend on that first point of contact,” noted Lee. A simple list of
insurance FAQs could deal with the problem noted Shorten. Though many
specialist insurance companies have simple risk management and insurance
guides; so this needs to publicised more, accepted Ingram.

So what of the rise of the Big Society? As a concept it is a nice idea in terms of the society it hopes to create, noted Emery. “But where more individuals are getting involved [with charity work and events] there needs to be more clarification on personal insurance,” he added.

Charity and voluntary organisations have sometimes to quickly come up with proposals for working together to bid for contracts, and the risk this involves is
an issue, noted Locke. Hickman said he had seen this, where a charity had won a contract but were then tied by TUPE, and were uncertain where it left them with regard to pension and benefit provision.Insurance companies can help with this, noted Hudson, with some insurers able to offer employment helplines with access to specialist employment lawyers.

Sector development
There will be with TUPE, noted Chesters, an increase in employment tribunals.
And if it does go to a tribunal, it is in the public domain, noted Hudson, causing
more risk – this time reputational risk, to the charity and may well be better in
those circumstances to settle early. But smaller charities would find this difficult,
observed Chesters.

A point supported by Lee. “For any organisation significantly under £1 million in income, you would almost want to advise them not to touch the contract,” thereby avoiding an issue with TUPE, she noted. On this basis, there is a danger the bigger charities will take these contracts on and we lose the diversity of the sector. Will this then result in more consolidation between smaller charities? asked Hudson.

“Quite possibly,” responded Lee, “but formal partnerships and mergers are not
necessarily the right way forward for smaller charities, because that can bring
a legal and administrative burden that is beyond smaller charities. That doesn’t
mean they shouldn’t collaborate; and there are ways of collaborating which
doesn’t involve complicated legal processes, so we would encourage collaboration.”

Moreover, merging together smaller charities together is not going to eradicate the risk, noted Chesters. The disincentive with TUPE, is also the responsibility of taking on local authority pensions. “Who would want to do that?” asked Lee.

Hudson noted that also questions about what TUPE means are frequently asked after the contract has been signed, not before. “We have some simplified questions to help organisations through that.” Emery then asked Chesters about
TUPE and co-ops and new funding models, particularly in the context of their
work with ex-offenders, and how outcome payments may impact on the organisation managing the risk and cash-flow and managing volunteers.

Chesters noted the performance and risk of employees is very important, but he noted they do not always know if there will be up-front payments, six months or a year programme. “We are looking at working with large commercial partners, who may or could subsidise these projects as they go through,” noted Chesters.

“Within the Big Society the expectations of neighbourhood groups taking over
their local library is a different type of community action and brings up all types
of new risks and how far the people understand what they are getting in to, and are equipped and organised for the risks,” said Locke. “It does come back to an infrastructure group like ours to play our part in offering advice.”

Grasp of reality
Hudson noted the sector was moving from outputs to outcomes: “When you have an outcome that is not to the adequate level, at what point in the chain are you going to look for recourse? The claimant will have a go at all sides. This is therefore a new aspect of risk for insurance to think about – because when is the outcome going to be measured? Insurers and social welfare providers are going to need to work together to produce a portfolio of evidence of satisfactory outcomes.”

Locke noted that charities need to get a real grasp of the insurance they need.
“A good grasp of reality results in less anxiety.” Local authorities have a role here, a point picked up by Emery. “We are working with local authorities to support community engagement.”

“There is a risk aversion in some local authorities and fears of the compensation culture,” noted Locke. The Jackson Report will have an impact on After the Event cover, said Hickman. Public liability indemnity limits were commonly up to £1million for most organisations said Ingram, but now it is not unheard for local authorities to demand cover up to £2million, £5 million or even as high as £10 million for certain activities and events.

There is, noted Shorten an issue of brand reputation, particularly around websites. “While it is possible to consider a website in terms of cost – so much to
build, so much revenue expected – if there is a problem with the site the issue is more than the expected revenue lost, the issue is the damage to the brand.”

“The tension between giving people space to develop, but creating liability that if it goes wrong could get picked up by the media, is an on-going one,” noted Locke.

Emery sympathised that charities do face not knowing what is out there: what data have volunteers got, what if they lose some sensitive data. “Data loss is a great risk with greater transparency, with the Office for Civil Society wanting more information in the public domain: data security is key and every charity should be thinking about it – who has access to the data?

And how is it protected?” And noted Shorten, “Are they cleansing it properly?” It is a big issue for Lee as well, as she noted small charities use basic data systems
like Excel spreadsheets. A whole range of insurance covers exist to deal with many of these issues, noted Ingram, such as indemnifying costs for managing adverse publicity and various legal defence costs.

Bringing these together, Emery noted the importance of identifying risk transfer and understanding those risks being transferred in contract service delivery and factoring in those risks. The other being operational risk: taking any decisions quickly, but also competently, in any cuts in funding you may have. Chesters noted proportionality is a key criteria going forward, while Lee was reassured by the openness of the insurance sector to support smaller charities.

Mike Locke agreed that proportionality was important in terms of risks the sector is dealing with. But Hudson said it was about not being afraid of risk. “Risk is a fact of life. Charity governance includes recognising risks then prioritising and having a sense of proportion; and dealing appropriately with them.”

Hickman noted there needs to be more information on the volunteering side so charities know what they are covered for, but challenges exist via the uncertainty of the Big Society.

Ingram concluded that the Big Society has probably been around for a very long time already, but with the current government commitment to expanding social responsibility there is a real motivation from the insurance industry to play its part in helping charitable organisations reach out further into local communities.



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