No Silent ALARM

17th July 2008

The 16th annual Alarm conference saw public sector risk managers gather alongside insurers, brokers and lawyers for what is an increasingly important networking event. Ralph Savage reports on the issues taking centre stage

"Without you, this country would be lost"; the closing words of a rousing speech from former government minister Sir Richard Needham paint a vivid picture of the defiant mood at this year's conference for members of Alarm, the national forum for risk management in the public sector.

At times an embattled group, around 600 of the UK's public servants attending clearly appreciated this sentiment, rewarding it with a standing ovation. And the ex-Northern Ireland minister, who many credit with beginning the province's rebuilding after decades of conflict, had also emphasised how their work was frequently "taken for granted".

Whether or not this is true, Alarm is on the front foot and has ambitious plans to raise its profile. With this in mind, the conference included the announcement of twin goals: the creation of Alarm's list of risk management core competencies; and the national performance standard for public sector risk managers.

At the head of these projects is the desire to see the risk managers it represents recognised to the same degree as other professionals, such as accountants or HR managers. Richard Feltham, corporate governance and risk manager for Kent Fire and Rescue Service, and the newly elected chairman of Alarm, explains: "A lot of risk managers have emerged from insurance departments and are still regarded in that way. But I come from an accountancy background and have picked up insurance in addition to risk management and corporate governance. The new generation of risk managers are making career decisions and are coming in via MSc or Institute of Risk Management qualifications. Yet they are still not recognised or remunerated anywhere near as well as professional accountants, lawyers or HR professionals."

Rising recognition

Alarm has grown up, according to Mr Feltham, and his desire to raise members' standing to a level above those of simply insurance or claims managers is apparent: "Only 25% of risk is insurable anyway," he says. Despite this, Alarm's exhibition hall at the Birmingham NEC Hilton Metropole showed the key players from the risk transfer business are still out in force and are keener than ever to work with the UK's public bodies.

Bill Sulman, executive director for Heath Lambert's public sector group, explains the landscape from a broker's perspective: "There was a time when almost everybody renewed on 1 April. That's changed with people renewing in October and August to get away from the cycle. The difference between the public and private sector is that, with the latter, you can turn up to your client two weeks before renewal and make a presentation. With the public sector, you've got to do that three months before - a colleague of mine is presenting for a risk that renews on 1 October right now."

Property rate drop

With regards to the current insurance cycle, Mr Sulman explains some sharp rate falls are being quoted and - perhaps rather surprisingly - the biggest reductions are in property lines where 2007 flood losses failed to dent reserves because of well-documented under-insurance by many councils. "We've seen 60% savings in some cases and the average is down 30% to 40%. If clients were paying £2m in 2007, they are now being quoted £1.2m this year. It's probably more pronounced in property."

As the case of Hull City Council in 2007 proved, the under insurance of public property represented a reputational risk against which those responsible may have failed to mitigate. However, self insurance remains a growing trend, not least for liability claims.

Andrew Cooper, director of the public sector group at law firm Weightmans, explains that generally in this sector retentions are rising all the time. "The appetite is there; as local authorities continue to improve their risk management, they will take higher excesses. They will always need insurance, but 10 or 15 years ago the profile was very different. Excesses have probably increased tenfold: what was a £25,000 deductible is now £250,000."

Looking at this scenario from the claims end, Helen Brown, partner and head of the public sector unit at Langley's Solicitors, adds: "The client wants to have a degree of control about their cases. At the end of the day, there is a huge reputational risk for a local authority and there can be very sensitive issues arising out of cases. If they have a larger excess, and the claim falls within this, it is their money. So we are seeing local authorities making their own decisions to fight or settle on cases."

Captive management and the setting up of mutuals by public authorities are two of the other key developments illustrating this increased trend for non-traditional risk transfer - and the ongoing litigation saga between Risk Management Partners and Brent Council over the legality of the contracts awarded to London Authorities Mutual was never far from people's lips at the conference.

Mr Feltham is unable to comment on this as his directorship of the Fire and Rescue Authorities Mutual places him in a conflicted position. However, Mr Sulman, himself a former Alarm chairman, remains an interested observer. "We have advised on the pros and cons of mutuals and we're so firmly on the fence we're getting splinters," he says. "But only because I think we have to be. I don't believe mutuals are a bad thing - if they are put together well, they can work. This one was rushed. Had it not been rushed, and executed with a bit more of a risk management orientation and less about making insurance savings, it might have worked better."

Local area agreements

The dynamics of the public sector are dizzying to say the least. Earlier this month a new Local Area Agreement was signed off for each area in England, consisting of up to 35 area-based priorities that will form the delivery mechanism for community strategy. And next year Local Strategic Partnerships will be introduced as a means of streamlining management of more than 5000 public/private partnerships costing the UK taxpayer in excess of £4bn.

Alarm's overriding message is for risk management to be an enabler for efficient, well-run projects - rather than a layer of bureaucracy designed to call a halt at the slightest hint of trouble. It is for this reason the body says risk management must be embedded into every authority's enterprise strategy. However, there is still a lot of work to do, as Mr Feltham concludes: "Most local authorities and public bodies will not score full marks but it's important that we set the standards against which they can measure themselves."

© Incisive Media Ltd. 2008