Following a government consultation, the Department for Education extended the academies’ risk protection arrangement (RPA) to local authority maintained schools (LAMS) effective 1 April 2020. As existing insurance arrangements came to their end, some schools have made the switch over the past 3 years, however a great number remained insured via their Local Authority. Matt James, Head of Education at Aon, explores the current landscape and potential differences in offerings that should be considered when selecting suitable risk transfer for your school.
Pricing (un)certainty
The initial attraction to the RPA was a headline saving on the per pupil equivalent cost vs commercial insurance premiums. For Academy schools where they would typically purchase a policy per Trust and could work out an equivalent price per pupil, this allowed an easy comparison. However, for LAMS the per pupil equivalent premium was complicated, given the Local Authority retain an insurable interest over the school and may have different deductible limits which affected the final cost charged to the school for insurance.
As can be seen in the published key results for the RPA, over the past 9 years the RPA membership charge to Academies has fluctuated from an initial £25 per pupil, to a low of £18. Effective 1 September 2023, the DfE will increase the cost to £23 per pupil for Academies. For LAMS, the current cost is already £23 per pupil until 31 March 2024 (it was £21 per pupil for the 2022/23 period) however this could always increase in future years like the Academy membership charges.
There is no denying the impact of Covid in terms of the deterioration of travel claims performance across schools given the number of cancelled trips, however as inflation continues to affect reinstatement costs as well as legal defence fees, this will also impact the RPA claims performance. There is, therefore, no guarantee of future pricing stability for the RPA, and schools should consider if the RPA continues to provide value for money and offers the same certainty for budgets that a contractual insurance Long Term Agreement would do. Approaching the insurance market to benchmark premiums for similar cover, would be a sensible strategy in the current climate.
Cover comparison
It remains important to consider the cover provided by the RPA and the individual requirements of the school. The RPA provides an extensive range of property and casualty covers including the full reinstatement value of the property in the event of material damage; business interruption cover of up to £10m for increased cost of working; and unlimited public liability, employers’ liability and professional indemnity.
As it’s designed as a one-size-fits-all approach, this will suit some schools, but others could find there are significant gaps when compared to the cover accessed through their local authority. Alongside potentially lower limits on some areas of cover – for instance £100,000 of personal accident cover through the RPA compared to the 4 or 5 times multiple of salary approach common in insurance arranged by the local authority – some areas remain outside the RPA, notably engineering and motor insurance. In addition, there is the potential requirement for project specific insurance cover for construction work at the premises with a value over £250k.
Cyber
The RPA now includes cover for Cyber, and the claims figures are currently captured in the Property Damage and Business Interruption claims figures, meaning that it is not possible to identify the specific Cyber losses paid over the past year. The Cyber cover is described as providing compensation for the increased costs of working, incurred by a Member, resulting from a Cyber incident. There is provision of incident response services, subject to the policy limit any one loss and in the annual aggregate, however of particular note is the limit of cover to £750,000 if a Group Network is impacted. In the commercial insurance world, whilst insurers are looking to limit their exposure to mass network events, there are typically limits much greater than £250k for a single loss, or £750k for a Group network matter. A large Multi Academy Trust may well have over 20 schools on a single group network, and the schools should be aware and consider the limitation on cover for a network attack. There is no cover for Ransom payments or expert fees to investigate a threat, and schools should be aware of the conditions of Cyber cover stipulated by the RPA.
As the RPA is ultimately covered by UK Government funds, there is a risk of either a change of central government policy around the future of funding such a scheme, and/or that a run of large claims could cause serious problems. It will be interesting, as the number of cyber incidents and attacks on education providers continue to increase, if the RPA will revisit Cyber protection offered under the RPA.
Support services
Cover is one element that needs to be considered but it’s also important to note that the recharge a local authority makes to a school doesn’t just comprise the cost of insurance. As well as the cover, the insurance team can also provide valuable risk management advice, claims support and handling, and site inspections to identify and manage operational risks. It may be necessary for local authorities to levy a fee where these services are provided to schools in the RPA.
Cover is one element that needs to be considered but it’s also important to note that the recharge a local authority makes to a school doesn’t just comprise the cost of insurance. As well as the cover, the insurance team can also provide valuable risk management advice, claims support and handling, and site inspections to identify and manage operational risks. It may be necessary for local authorities to levy a fee where these services are provided to schools in the RPA.
Break time
As well as assessing how any losses would be treated under both arrangements, issues could also arise as a result of a school moving to the RPA. Removing schools from an authority’s programme could be regarded as a break in the long-term agreement (LTA), potentially leading to insurers increasing premiums. In the current hardening market, this could prove expensive.
It’s also worth considering how a shift might affect an authority’s insurance programme. For instance, in its response to the government consultation, ALARM stated that although removing schools from a local authority’s insurance programme would reduce premiums for areas such as material damage, they would be unlikely to see any significant reduction for liability cover. This could have implications for the council’s overall budget as if the council re-charges the cost to specific departments, how will any balance of premium be offset?
Insurable interest
Alongside the financial implications relating to the programme, local authorities also need to consider how the RPA might affect their legal position. As the statutory body, the authority would maintain responsibility for education, regardless of whether or not the school opts into the RPA.
This means that, should a claim arise, the local authority could find itself facing legal action in addition to the school itself. As a result, even where schools are in the RPA, insurers will continue to reflect this risk in the local authority’s premiums.
Conclusion
Local authority maintained schools considering a switch to the RPA must carefully consider the implications of such a move, including factoring in the cost of services provided by their authority as well as insurance covers outside the RPA.
Schools should not lose sight of their individual requirements and should continue to understand their exposure to areas where the RPA cover may be limited, for instance around expensive construction projects or the impact of a Cyber event.
The RPA will represent good value for some schools, but it is essential that they understand all the implications and potential costs that they, and their local authority, might face, before they make a decision.
For more information, contact Matt James at [email protected] or Alison Goodwin, Practice Sector Leader, at [email protected]
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This article has been compiled using information available to us up to 06/07/23.
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