Town halls step in to provide cover
Nottinghamshire is increasing its schools' insurance premiums this year. The rise is modest but it reflects a relentless increase in crime - mainly arson, vandalism and burglary. "Some schools now have 20 to 40 break-ins a year, " said Bill Sulman, the authority's insurance and risk assessment manager. "And in cases where computer equipment is stolen, the loss can be as high as Pounds 20,000."
A similar picture is emerging throughout Britain. Schools looking to insure privately are being told they cannot get insurance unless they agree to a hefty excess - perhaps as much as Pounds 5,000. There is also a growing number of schools that commercial insurers simply will not touch. David Forster, the marketing manager for Zurich Municipal, says: "Commercial schools insurance has decreased dramatically in the past five years in spite of the fact that arson is costing somewhere in the region of Pounds 60 million a year."
As insurers have been withdrawing cover, so the local authorities have stepped in to plug the gap. Neither side is unhappy. Zurich's Mr Forster explains: "From our point of view, schools insurance is pound-swapping - for every pound the school pays in premium, we may be repaying 75 pence in claims. It makes more sense for the local authority to step in and pick up the risk."
Where insurers such as Zurich make their money is in insuring the local authorities against catastrophic loss. They pay out if claims are higher than an agreed amount - Pounds 100,000 in the case of a small authority, or up to Pounds 500,000 in the case of big county councils. In this way LEAs can insure predictable day-to-day risks but still afford to rebuild a school gutted by fire where total loss could be as much as Pounds 10 million.
The schools insurance market is dominated by the specialist insurer, Zurich Municipal. When Municipal Mutual, owned by the local authorities, crashed four years ago, it was Zurich that bailed it out and took over its business. Zurich has something like 75 per cent of the declining local authority schools insurance market and 20 per cent of the grant-maintained market. Sun Alliance and Royal Insurance are also leading players.
This picture must be unwelcome news for the 1,000 or so schools that are grant maintained. In opting out, they usually cut themselves off from the safety net of the LEA's scheme which covers not only buildings and contents but employer's liability as well.
Local authority insurance premiums are based on average yearly losses. Nottinghamshire charges Pounds 6,000 to Pounds 8,000 for a large comprehensive - less than half the price a commercial insurance company might charge, assuming it would be prepared to accept the risk in the first place. And Nottinghamshire schools only have to pay the first Pounds 100 in any claim.
The Funding Agency for Schools is aware that its schools are at a disadvantage over insurance. But the agency is not in a position to recommend individual insurance companies or offer an umbrella package as this would be interfering in the workings of the private market. An agency spokesman said: "There is a special purpose grant that pays 50 per cent of the cost of schools buildings and contents insurance and we are aware that insurance can be a complicated issue which is why our value for money team has been compiling a best practice guide."
Insurance is not an easy subject to get to grips with. There is no magic formula for assessing the risks and coming up with a premium. Figures quoted for insuring a large comprehensive range from Pounds 10,000 to Pounds 30. 000, depending on risk and how much excess the school is prepared to carry. Zurich's Mr Forster explains: "Schools are individually rated. There are a lot of variables to consider such as whether it is inner city or outer city, what building materials have been used, what security measures are in place and what is the risk of arson."
Many schools and local authorities have been investing heavily in such measures as fencing, closed-circuit cameras and intruder alarms. But, according to Bill Sulman in Nottingham, no local authority would reduce premiums for schools which are better protected or have fewer break-ins. The principal of shared risk and spreading the burden is important for authorities which have to be free to run their service according to educational need without bowing to pressures to close schools in deprived areas where the risk of arson or break-ins is higher.
Is there any mileage in a school going it alone? Even commercial insurers agree that security measures are no guarantee of a reduced premium. While schools that have invested heavily in security are likely to have fewer claims, it will take many years before the money is ever recouped through reductions in premiums. On the other hand, competition between insurers means premiums are now lower than for many years.
In spite of this, Mr Sulman maintains it is almost always cheaper to insure through a local authority scheme. "Ninety-nine point nine per cent of our schools choose to insure with us. The reason is we don't look to make a profit and we do not charge a fee."