For every £1 that charities pay in premiums for insurance cover, only 20p is paid back in claims, according to a survey for the voluntary sector support services organisation Charity Logistics. This compares to 50p to 60p on average for organisations in the private and public sectors.
"This suggests that cover in the voluntary and community sector is a very profitable business for insurers," said George Cook, chief executive of Charity Logistics. "That makes it particularly mystifying why some charities are unable to get the full insurance cover they require. We have to ask if charities aren't, in fact, subsidising some of these companies."
The report says industry experts believe that a claim-to-premium ratio of between 50 and 60 per cent will sustain a profitable insurance business.
"If the claim-to-premium ratio is less than 50 per cent, then the business will be even more profitable for the insurer," the survey report says.
"The claim-to-premium ratio during 2002/3 for the voluntary organisations that participated fully in the survey was an average of 20 per cent across all categories of insurance."
The survey also found that voluntary organisations were hit by premium rises of, on average, 30 per cent for 2003/4. But there were wide differences in premium increases, ranging from minus 6 per cent to 145 per cent.
The findings contrast with the notion, common in the insurance industry and parts of the voluntary sector, that better risk management will reduce insurance costs.
Sixty-five per cent of respondents had carried out an audit of risks, 38 per cent had adopted additional security measures and 25 per cent had developed a risk manual. Despite this, "no relationship was found between risk management actions and insurance premium prices increases."
The study, which was conducted by the research company Z/Yen to determine the feasibility of setting up a charity insurance mutual society, concludes that there is considerable scope for charities to collaborate to reduce insurance costs, eventually forming a mutual insurance club. Sixty-eight per cent of charities surveyed were interested in developing group insurance for the voluntary sector.
The Association of British Insurers denied that the industry made excessive profits from the sector. "This doesn't tally with our statistics," said ABI spokesman Malcom Tarling. "We find that insurers are losing money hand over fist from this kind of work."