Charities have got so used to paying stable prices for insurance that they could be forgiven for thinking they will last forever.
The insurance market traditionally works in seven or eight-year cycles of so-called soft and hard markets. However, the current soft market, characterised by benign conditions and relatively low-cost premiums, has continued for more than a decade.
Like mortgages, low rates have been around for so long they have become the norm. But there are signs that the market is hardening as underwriters begin to consider the impact of new inflationary pressures.
Perhaps the main concern is the rising cost of insurance premium tax. The Treasury introduced IPT, which is a general tax on premiums and therefore unavoidable, at a rate of 2.5 per cent in 1994. For years the rate inched upwards, but in the past two years it has increased three times: in November 2015 it rose from 6 per cent to 9.5 per cent; in October 2016 it went up to 10 per cent; and in June this year it increased again to 12 per cent.
It might not stop there. "We are all concerned that IPT will go up to 20 per cent to bring it in line with VAT," says Andrew O'Brien, director of policy and engagement at the Charity Finance Group. Along with Access Insurance, the CFG has led the No Charity IPT campaign, which calls for charities to be exempted from IPT.
The Treasury always denies doing anyrthing until the moment it does it. It takes time to listenAndrew O'Brien, Charity Finance Group
The campaign says the cost of IPT to the sector has risen from £24m in 2014 to £48m, and could go up to £83m if the rate increases to 20 per cent. A case study calculates that the Neighbourhood & Home Watch Network, which spends £24,000 annually on insurance, could see its IPT liability increase from £2,880 to £4,800 if the rate goes to 20 per cent.
The campaign, which began last year, has made submissions to the Chancellor, Philip Hammond, helped to raise questions in parliament and launched an online petition that attracted 1,666 signatures.
So far the Treasury has shown no sign of budging. O'Brien admits the financial implications of Brexit leave the Treasury with little room for manoeuvre, but the fight continues. He says that the CFG will work with the Association of British Insurers to examine the impact of IPT on the voluntary sector and will engage with parliament before the autumn Budget on 22 November.
"The Treasury always denies doing anything until the moment it does it," he says. "It takes a long time to listen and we are in it for the long term."
O'Brien says the government's impact assessment for the most recent rate rise did not consider the voluntary sector and maintains that clawing back tax from IPT is contrary to the purpose of Gift Aid. Charities, he adds, are custodians of heritage and community assets and often have many volunteers, so their insurance costs are often unavoidably large and cannot be passed on. He suggests a windfall tax on insurers would be fairer.
Another issue concerning insurance specialists is the Ogden rate, which courts use for calculating personal injury payments.
The rate, which is based on the return a claimant might expect to receive from the investment of a lump sum, stood at 2.5 per cent for 16 years from 2001. But in February the rate was reduced to -0.75 per cent to reflect low investment returns.
The increased likelihood of lower long-term returns has led to courts issuing higher initial lump-sum payments, which is pushing up the price of premiums. After an outcry by the insurance industry, the government announced in September that it would review the Ogden rate. It proposed a figure of between 0 per cent and 1 per cent, but has not set a timeframe for a final decision.
Wendy Cotton, technical line manager for social welfare at the insurance company Markel UK, says charities that have large fleets of vehicles "will be hit for certain" because of Ogden's effect on motor insurance. She says she has heard of lump-sum payments rising from £200,000 to £1m because of the new rate.
One charity insurance specialist, who does not wish to be named, says motor policies have risen by between 50 and 100 per cent. Charities with high numbers of staff or volunteers engaged in high-risk activities, such as running care homes, are also likely to experience premium increases because of Ogden.
Cotton says the impact could be felt in the new year. "That's when insurers tend to buy insurance for themselves," she says. She advises charities to ensure they are not over-insuring or under-insuring and to take any free product add-ons, such as PR crisis management, legal advice and buildings evaluations. "You'd be surprised how many don't," she says.
But she says charities should be wary of increasing their excesses to reduce premiums. "Experience tells us that increasing the excess doesn't reduce the premium significantly," she says.
Charities that win public sector contracts are also at risk of price rises, according to David Briton, charity director at the insurers Ecclesiastical Insurance. "If they are taking on more hands-on delivery of services, this changes their risk profiles and could affect their employers' and public liability insurance," says Briton. Conversely, charities such as Scope, which announced in the spring that it was cutting back on providing services to focus more on advocacy, could see their premiums fall.
But there is no consensus about whether inflationary pressures, IPT, Ogden and contract delivery are confined to specific charities or indicative of a hardening market. Simon Hickman, chief executive of Access Insurance, acknowledges there have been price increases in motor, and some charities with staff or volunteers engaged in risky activities might need to increase their levels of cover, but prices overall are stable. "We seem to have been in a soft market forever," he says.
Gordon Wilmott, head of market for charities and social organisations at Zurich, says different insurers are taking different approaches. "Some are passing the costs on and some are taking the hits themselves,"he says. "But the general inflationary pressures are definitely there and at some point the costs flow through to the market."
The mixed response of insurers, plus continuing uncertainty about the Ogden rate, make it even more important for charities to shop around and focus on risk management. "Insurers look at you more favourably if you can show you are controlling the risks you take on," says Wilmott.
Some charities, he says, might consider self-insuring, but he too urges caution against increasing the excess. "This puts more risk on the balance sheets," he says.
Nor is he convinced the market is set to harden dramatically. But he adds: "Insurance is a risk game, and you never know what's around the corner."