How to insure yourself

Save the Children UK estimates that it saved at least a quarter on its insurance bill by moving from conventional insurance to self-insurance. Mathew Little looks at how the numbers add up

Save the Children [Harriet Logan/Save the Children]
Save the Children [Harriet Logan/Save the Children]

When David Willingham joined Save the Children UK in 2006, it paid for conventional insurance, where a charity pays a premium to an insurance company, which then meets any claims. The insurer retains between 20 and 50 per cent of the premium for overheads and profits.

Soon after Willingham joined Save the Children, it decided to stop paying for conventional insurance. It did its job and made employees feel secure, but Willingham says he had a strong feeling that it was not the best use of the charity's money.

"I've been in insurance and risk management for a long time," says Willingham, now the charity's risk financing manager. "I'm more and more aware that so long as you control your exposure to payments, in the long run it is more economical to pay much of the loss yourself than to give money to insurers to do it."

So since July 2009, Save the Children UK has adopted self-insurance to cover employee-related risks for its staff worldwide. "We've worked out that we can afford this," says Willingham. "We are actually saving money compared with buying conventional insurance. I'm pleased that we have saved some money so that we have more to spend on children."

Self-insurance is used for the cover Save the Children UK's international staff automatically receive when they work for the charity. It also covers UK-based staff on business trips abroad. About 270 employees, as well as 100 of their dependants, spouses, partners or children, are covered. The insurance applies to accidents, although the most common claim is for medical attention, which includes treatment needed by staff before they return home at the end of their contracts, as well as medical evacuation.

Instalment plan

To meet the cost of the insurance, Save the Children pays into a bank account managed by Banner, a specialist charity insurance broker. The charity pays into the fund throughout the year if the amount in it falls low. Claims are managed and paid by the broker, although the fund is in the charity's name and is part of its annual budget. If there is money in the fund at the end of the year, which runs from the end of June to the start of the following July, it is returned to Save the Children.

Because the brokers manage and pay the claims, there is no potential conflict of interest. "No one in Save the Children sees any confidential medical details," says Willingham. "I see only the financial side of things."

He says the switch has brought significant savings. When the charity decided to renew the fund in July 2010, it was estimated that self-insurance was more than 25 per cent cheaper than conventional insurance.

But Save the Children still buys insurance. Known as 'stop-loss' insurance, it kicks in if an agreed cap is exceeded on the amount Save the Children pays into the self-insurance fund. The insurers then step in to meet the balance. This happened in the fund's first 12 months, so in that financial year Save the Children's self-insurance threshold was increased.

Willingham says self-insurance works because the charity knows roughly how many claims there will be. "With nearly 400 people, including the family members covered by the insurance, it spreads the risk," he says. "Although you can never predict exactly, you can more or less know what the result will be. You know that a proportion of people are going to fall sick and have accidents and need treatment for their injuries or sickness."

The percentage of people making a claim is between 20 and 30 per cent, and the margin of error is small.

Medical bills

"Self-insurance is particularly suitable when there are sure to be a number of claims and you know that the insurers will have to charge a lot of money, because they know as well as you do that you are going to claim a lot back," says Willingham. "Medical expenses for staff on long-term overseas postings is a very good example, but it should also work well if, for instance, you have hundreds of motor vehicles all around the world and need to make provision to pay for loss or damage to them."

But the scheme's success depends on the relatively large size of Save the Children UK. Willingham says it wouldn't be an option for a small charity because the number of claims could not be predicted reliably, and one or two claims could make a big difference. "For a charity of our size, it works very well, and I suggest that charities of a similar size should look seriously at that way of doing things," he says.

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