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Insurance for schools : the risks and the market
22 December 2008
The most recent government guidance for schools in relation to
insurance matters dates from 2003 and as such increasingly does not
address issues for schools as they now stand nor the growing
sophistication of the education provider market. This lack of
information coupled with an unresponsive commercial market, has
meant that insurance arrangements for schools can be unnecessarily
generic and expensive, and fail to meet the specific needs of
schools.
The Risks to Schools
Schools are arguably unique in the number and variety of risks
they face. However, although all schools encounter the same risks,
the variety of types of model of schools means that they do not
necessarily all face an equal level of risk in all those areas.
School Buildings
Damage or destruction of school buildings represents a serious
risk to many schools. If school premises are seriously damaged, a
school may have to close down completely. School buildings should
be insured for the full cost of reconstruction. Cover can also be
arranged for other school property, including unlicensed vehicles
not used on the public road, equipment on loan or hire, contract
works and the personal effects of pupils, staff and governors.
Damage by fire and other risks can be insured, but schools usually
have to bear the first part of the loss for damage by storm, flood
and water damage, theft and subsidence. Other risks are
uninsurable, such as ordinary wear and tear to property. There are
also likely to be limits on the insurer’s liability for loss of
money, computer systems records and personal effects.
In community schools and voluntary controlled schools, the LEA
has the insurable interest in school buildings and property. The
insurance should, therefore, be in the name of the LEA. However, in
foundation schools it is often the governing body which owns the
buildings and bears the risk. Similarly academy trusts usually own
the school premises and should ensure that their interest is
insured. In the case of voluntary aided schools, both the governing
body and the LEA are responsible for the school premises. The
governing body must repair and maintain all school premises, except
playing fields and buildings on the fields associated with their
use, which are the responsibility of the LEA. The governing body
will, however, receive a grant from the DCSF of 90% of the cost of
repairing school buildings. Where a voluntary aided school receives
delegated funding, it must insure the LEA’s interest as well as its
own.
Pupils
Schools should have adequate insurance to cover claims by pupils
for personal injury and assault against the school, its staff and
governors. Public liability insurance will pay out to pupils if the
school was at fault. However, personal accident insurance will
cover claims by pupils regardless of whether or not the school was
to blame.
The risk of pupils bringing claims is borne by the LEA in
community and voluntary controlled schools. However, the insurable
interest lies with the governing body in voluntary aided schools,
foundation schools and academies.
LEAs usually offer insurance to cover claims arising out of the
normal activities of the school, but will not routinely cover other
events, such as weekend activities. Schools will need to take out
private insurance to cover these additional risks.
Staff and Governors
Claims may be made against the school and its staff and
governors. Pupils, parents, visitors and members of the public may
make personal injury claims. Schools should buy public liability
and personal accident insurance to cover these claims. However,
LEAs will usually only provide insurance for claims arising out of
the school’s normal activities.
Pupils and their parents may also bring claims against the
school, or directly against teachers and governors, alleging that
they have failed to discharge their professional duty of care - for
example, failure to educate claims. Schools should, therefore,
ensure that they have professional indemnity insurance. The impact
of not having this type of insurance may go beyond schools being
unable to defend claims - the school may also have difficulty
persuading good people to serve as governors.
The possibility of fraud means that schools should invest in
fidelity insurance to cover loss of money or property due to the
dishonesty of teachers, governors and school managers.
Where the governing body of a school employs the staff, such as
in academies and trust schools, the school is required by law to
take out employer’s liability insurance to cover claims by teachers
and other school personnel. This compulsory requirement does not,
however, apply to LEAs, which can self-insure against employer’s
liability claims. In reality, most LEAs do buy external employer’s
liability insurance.
Supply Teacher Insurance
Schools should ensure that they purchase insurance to cover the
cost of employing a replacement teacher when a member of staff is
absent. However, most supply teacher insurance policies are subject
to a ‘deferred period’ and will not pay out until the absence
exceeds a certain number of days. Insurers will also only pay out
for a limited number of days in any one case of absence – 195 days
is usual. Schools may therefore find that they themselves have to
meet some of the cost of employing replacement teachers.
Hirer’s Insurance
Where schools hire out part of their premises to clubs and
societies, they can arrange insurance to cover the risk of people
who hire the school premises becoming liable for personal injury to
others.
Alternatively, hirers may have their own public liability
insurance. However, a school’s own hirer’s insurance policy is
unlikely to cover the activities of businesses and political
organisations. Schools should check that these groups have their
own public liability insurance before hiring out the premises.
Motor Insurance
Any vehicle that is owned by a school and used on the public
road (such as a school minibus) must be insured by law for ‘third
party’ risks. Schools can also opt for comprehensive cover for
fire, theft and any accidental damage. There are usually excesses
on motor insurance policies which schools will have to pay.
If school staff or governors use vehicles that belong to parents
for school activities, they or the school could be held liable for
an accident, even if a parent was driving at the time. The parent’s
own motor insurance policy will usually cover this risk. However,
if the parent’s insurance is invalid for any reason the risk is
usually insured under the ‘contingent liability’ element of the
school’s public liability cover. It may be the case, however, that
the school’s public liability policy requires the school to have
checked the parent’s insurance.
School Journey Insurance
Schools should ensure that they have taken out a policy to cover
staff and pupils in relation to travel on school trips. A travel
policy will insure against loss or extra expense resulting from
unavoidable delay or cancellation of the journey. It will also pay
out for personal accident claims and medical expenses. Additional
cover can be provided for luggage, personal effects and money. Any
other liabilities will also be covered by the travel policy if they
are not insured under a different part of the school’s insurance
policy.
Legal Expenses Insurance
The cost to schools of making and defending claims against
staff, supplier and contractors can be high. Schools should make
sure that they invest in insurance to cover this type of
litigation. Insurers will pay the cost of defending the school and
its staff in civil or criminal actions, and of pursuing claims on
behalf of the school. They will also pay certain compensation
awards against the school - for example, compensation for unfair
dismissal of a teacher. However, the policy will not cover disputes
that existed before the policy was taken out. Schools may also have
to pay an excess, and the cover may not apply to claims where the
amount in question is very small.
Funding Insurance for Schools
With the exception of academies, which receive funding direct
from their sponsors and the DCSF, schools in the maintained sector
receive most of their funding from the Local Authority. LEAs can
retain the funding within their Local Schools Budget to buy
insurance. Many local authorities ‘self-insure’ a wide range of
risks by maintaining an insurance fund to cover smaller losses
through their revenue account. However, those local authorities
usually take out insurance policies in the commercial market for
losses that exceed a certain amount, for example, losses over
£100,000.
Alternatively, LEAs can delegate funding for insurance to
schools under the Fair Funding scheme. Schools which elect to
arrange their own insurance through delegated funding must receive
the appropriate portion of the LEA’s planned spending on insurance
for that school. Where schools choose to receive delegated funding,
they are able to buy insurance from private companies or brokers.
Alternatively, they can opt to ‘buy back’ into the insurance cover
provided by the local authority. In practice, many schools end up
paying the local authority to arrange the majority of their
insurance as the cost of arranging private insurance for themselves
is prohibitively high. Yet with the government encouraging
increasing autonomy of governance for schools in the form of more
foundation and trust schools, increasing numbers of schools see
having to buy back into local authority insurance as an
unsatisfactory way of meeting their insurance requirements.
Government’s School Risk Management
Strategy
In 2004, the Government commissioned a study into improving the
insurance market for schools. The study, undertaken by Cap Gemini,
made a number of recommendations, including a risk management
strategy and weighted premiums depending on the degree of risk.
This would help lower the price of insurance by reducing the amount
of unnecessary cover that schools pay for.
Following the study, the Government developed a risk management
strategy which local authorities can choose to follow. This
includes a Risk Ranking Database, which allows local authorities to
collate the results of risk assessments and rank schools according
to their level of risk. The Government has also developed a Risk
Management Toolkit to help schools to understand and reduce their
risks.
An Unresponsive Insurance Market
However, at this time the Government’s risk management proposals
have done little to make the insurance market for schools more
responsive. Schools may be able to assess and understand their
risks more easily, but it remains the case that the specific
insurance required is not available to many schools at a sensible
cost.
Only five insurance companies underwrite about 90% of the
market. This lack of competition means the cost of private
insurance has remained high. Neither has the market kept pace with
the changes in the education sector. A greater diversity of types
of schools has led to different insurance requirements based
varying levels of risk. However, at this time the possible reduced
risks in some areas for some schools are not reflected in lower
premiums. As a result, the cost of private insurance purchased by
individual schools remains prohibitive, whilst the option of buying
back into the LEA scheme is unattractive to autonomously minded
schools.
To combat the high cost of insurance, dioceses sometimes obtain
reduced premiums by negotiating ‘block’ policies for a consortium
of voluntary-aided schools, sometimes seen as lower risk in some
areas as compared with community schools. This option is not so
easily available to non-church schools that might want to purchase
private insurance, even where they enjoy federated
arrangements.
The Way Head
The Government has set schools the target of reducing their
expenditure by 1% year on year, and of securing value for money in
their spending. However, by 2009/2010, the estimated annual cost of
insurance to schools will be £437 million. For that reason alone,
if schools are to meet their spending goals, the insurance market
needs to be encouraged to diversify and provide a wider range of
school insurance packages. Arguably this cannot begin to happen
until insurers develop a more up to date understanding of the
education provider market as it now exists and the risks associated
with it and also a deeper understanding of the varying level of
risk faced by different categories and groups of schools.
To this end Browne Jacobson is currently working with insurance
broker Marsh UK to produce a report analysing the issues of risk
and insurance cover available in the education provider market
today. It is intended that the report will be distributed to all
schools nationally in spring 2009. If you are a stakeholder in this
issue and would like to contribute comment to the report please
feel free to contact mblois@brownejacobson.com
This article was first published in School
Leadership Today
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