In these over-litigious times, charities should seek advice to avoid the trap of paying too much for insurance while being underinsured, writes Nick Cater.
Given the threats charities face in today's insecure times, it is hardly surprising their boards and managers are so risk-averse: donations and investment income can fall, events can fail, property can be damaged, volunteers can get injured, or a staff member might do something that brings a bill with lots of noughts on the end.
Even with insurance to reduce the burden of such risks, a combination of factors - from terrorism to 'no win, no fee' lawyers - have given charities rising premiums, larger excess levels and more exclusions from cover.
Yet some risk-fearing charities find themselves simultaneously underinsured and spending too much on protecting themselves, simply because they do not know any easy way to cut costs or even how to talk to insurance firms.
Motor insurance is a seemingly simple cover required by many charities.
Yet even motor insurance presents a growing range of pitfalls if it is not well handled, says Sue Viney. She is an expert in work-related road safety who spent 20 years as a motor fleet insurance underwriter and has become senior consultant on the management of occupational road risk for the Royal Society for the Prevention of Accidents.
Viney believes charities can waste thousands of pounds by failing to discuss means of reducing driving risks with brokers and insurers. "Insurance companies say charities do not present well," she says. "Actually, charities starve them of information, so brokers cannot find the best deals and insurers cannot make a fair judgement of claims. I have yet to find an example in which a small investment in time to evaluate the risks involved and communicate the full picture to the insurer - rather than a sketchy outline of the organisation - hasn't resulted in a saving on the premium."
Charities are vulnerable, says Viney, because they are reliant on their reputations and public support and are unable to pass on premium hikes easily - and because they use volunteer drivers, carry a variety of loads and passengers, travel at odd hours and their logoed vehicles are targets for vandals.
The use of private cars also causes complications. "If staff or volunteers drive their own vehicles on charity business, the charity has the same duty of care as if they were the charity's own vehicles - they need to be regularly serviced, well maintained and properly repaired," says Viney.
"Charities must ensure people are protected and the charity fulfils its legal responsibilities, but it is obviously hard to tell someone who owns an old rustbucket that their volunteer fundraising or long service for the charity is no longer required."
In fact, Viney claims she has yet to find a charity doing all it could to protect itself, its staff and volunteers from road risk. Voluntary groups often lack occupational driving policies, and health and safety systems may ignore drivers. In her role as a consultant, Viney's work includes reviewing how legislation and health and safety regulation affect a charity's operations, looking at existing occupational road risk systems, structures and policies, and analysing records of accidents, claims and losses.
She says recommendations are usually about new systems and procedures, including a requirement to assess drivers' competence. Claims analysis may reveal the worst drivers, who can then be retrained, transferred or given the sack. Viney claims that those who go through a review and implement its recommendations save more than the process costs; even if premium cuts are not possible, proposed massive increases can be reduced to negligible rises.
Allianz Cornhill urges charities to implement professional risk management and keep policy details current. Small business manager David Martin warns that risk surveys sometimes reveal underinsurance "through the lack of index-linking to keep the charities' cover up to date with rising costs".
He says that being able to absorb smaller incidents instead of making claims can help charities cut costs. "This allows them to focus their spending where it is most needed, for their biggest potential liabilities, which for many charities might be risks involving their work with the public," he says.
He also suggests that charities should take expert advice: "We want our charity clients to get the best advice, so we are keen for them to use brokers."
Experienced insurance broker John Bamford warns that charities must get tough for their own protection, "otherwise they will get a rude awakening by being taken for a ride". A director at brokers Tett Hamilton & Co, he says the days when charities could assume they would not get sued are long gone. "We've all heard about a handful of blood-sucking, ambulance-chasing solicitors out there who will take money from anyone," he points out.
Bamford agrees that charities can be both underinsured and spend too much if they do not make an effort to understand how insurance works.
As well as tapping outside expertise, there needs to be a top-down buy-in, he argues: "Most chief executives look at insurance only when they are surrounded by a pile of smouldering ashes."
For the best deals, Bamford suggests explaining what the charity is doing to control risks, so that the insurance underwriter has more than just a bad claims record from which to calculate premiums.
He adds: "The trick is to shut the stable door before the horse bolts."
Useful information on charities, risk and insurance can be found at www.askncvo.org.uk, www.vol resource.org.uk, www.charity-commission.gov.uk and www.rospa.com.
CASE STUDY: PDSA
Veterinary charity PDSA (formerly the People's Dispensary for Sick Animals), provides 1.2 million free treatments a year for the pets of low-income families. The charity has about 200 vehicles, including 70 light commercial vans and its unique PetCheck vehicle.
The commercial vans are used mainly to transport stock for the PDSA's 181 charity shops, collecting sacks of goods from people's homes and distributing items to shops.
The remaining vehicles are business-need cars for veterinary staff and managers. Volunteers can also use their own vehicles to help the charity.
PDSA fleet manager Julie Ward says: "The insurance market has been getting tougher for a number of years, and premiums have increased." Sue Viney, a Royal Society for the Prevention of Accidents expert in work-related road safety, has helped the charity with its insurance for just over a year. This has involved reviewing its claims record and considering how to get the best insurance deal, which has led to a change of brokers.
Ward is very pleased with the progess. "We now get regular data from our insurance company, which means we can target any problem areas and include this in advice to drivers and in the driver training we have started," she says. "It can be very simple things, such as reversing in the vans, which can obviously be more difficult because of limited rear vision.
"It has been very useful to analyse the data from all our claims. This has helped to explain why and how our claims rose and pushed up the premiums.
The driver training has started with the van drivers, and we are planning to work our way through the fleet."
Volunteers require a different approach: "All volunteer drivers have to absolve us of liability by signing a form declaring that they have informed their own insurer that they are driving for charity and hold fully comprehensive insurance."
Ward adds: "It is early days yet, but it has been a positive and helpful experience. I hope that it will reduce our accidents and our claims, and will cut our premiums - or at least keep any increases under control."
For more information, visit www.pdsa.org.uk.
INSURANCE: TOP 10 TIPS
1. Go for broke Find a good broker who understands your charity and its work, has plenty of other charity clients, offers you useful feedback on risk management and does not always promise to cut premiums.
2. Heal thyself Look at your charity and the risks it runs. Turn risk assessment into policies to keep people and property safe, your charity's interests protected and trustees and managers out of court.
3. Talk is cheap Talk to your broker and insurance firm, especially if considering changes. This will help them appreciate what your charity does and how it manages risk, and will help you understand what insurers must know. Listen to their advice.
4. Keep on top Use your broker to explore the market, understand jargon, weigh up options and get quotes. Together you should regularly review cover, conditions and cost to ensure they fit your needs. Be fair: a little loyalty can make a big difference.
5. Penalty clause Ignorance is no excuse, so use your broker, insurance firm and other sources to keep up to date with new laws and regulations, such as public liability and court judgements and awards in, say, personal injury and property claims.
6. Lean over the fence Share information with other charities, especially when their activities and size are similar to yours. This will help you to assess whether you have the cover you need and whether you are paying too much or too little, and to secure intelligence on risk, losses and good deals.
7. The buck stops where? If possible, integrate the running and risk management of an activity and the purchase of insurance so that the connection of authority with responsibility for your charity's risks, insurance and costs is absolutely clear.
8. Pattern of errors Review losses and claims regularly - once a quarter, recommends one occupational road risk expert - to spot the common elements, such as items stolen, type of vehicle or location. This will help you work out how changes could cut your risks and costs. Centralising claims (or copying their details to a central department) can make this easier to achieve.
9. Saving together For economies of scale, improved risk assessment and better negotiating weight, encourage or require different departments or branches that buy insurance to share savings by buying together.
10. Back to basics Start insurance planning early, combine or divide different cover - travel, motor, public liability - to get the best deal, do the maths to set the right excess levels, ask about spreading payments to cut costs and, yes, do read the small print before signing the contract.