Treasury and Exchequer
Ministerial Decision Report
Reserve Funding for increases to insurance premiums
- Purpose of Report
To enable the Minister to approve the allocation of up to £848,501 from the General Reserve to the Treasury and Exchequer (T&E) Head of Expenditure and the use of additional income of £136,499 received in T&E.
- Background
The existing Insurance Budget has had to be increased on a number of occasions in 2019 and 2020 due to unforeseen pressures impacting the Government’s general and medical malpractice insurance programmes. The insurance market has entered a particularly challenging period for the first time in decades. In addition, the impact of COVID-19 and other global incidents are beginning to impact not only the price of premiums, but the extent of the cover offered in the marketplace and we are increasingly seeing exclusions in policies.
The additional requested funding in 2021 has arisen due to the following circumstances:
Insurance Premiums 2021
Health and Community Services – Global Increase in insurance premiums - (£610,000)
There continues to be a global increase in the cost of insurance especially Medical Malpractice insurance. This is being fuelled by the increasing frequency and value of claims (locally and globally); set aside a landscape of increasing litigation in the health sector; the impact of the global pandemic and an increasing numbers of insurance companies leaving the marketplace.
As an illustration the Government purchases two layers of insurance cover, a primary layer up to £10m per claim and a secondary layer up to a further £20m per claim. The secondary layer insurers (a global insurance company) pulled out of the market during 2019 with one month’s notice.
The premium is to increase in 2021 from £1.5m to £2.11m. This increase is in respect of the secondary layer insurance cover provided by two companies, Newline and Beazley.
There is a significant likelihood given the marketplace and increasing claims experience in some key risk areas that the renewal for 2022 will require a further additional increase that will need addressing through the 2022 Government plan process. For example, during 2020 the Government saw an increasing number of incidents and claims relating to maternity cases.
Funding of insurance cover for Non Obstetrics and Gynaecology Consultants (£225,000 in 2021)
Since 2011-12 the Government’s medical malpractice insurance has only covered those medical consultants working in the Obstetrics and Gynaecology Departments. There is no cover under the Government’s policy for non-Obstetrics and Gynaecology Consultants as they purchase their own indemnity cover from Medical Defence Organisations (MDOs). These consultants do, however, recover an element of their payments to the MDOs from the HCS department for the public work they undertake.
A major risk arises for Government in that the indemnity cover provided by MDOs is discretionary and can be rescinded if, for example, a consultant has a claim against them for malpractice but hasn’t complied with all relevant protocols. In such circumstances the Minister for Health and Social Services becomes vicariously liable for any claims. The Government currently has a number of such cases. These claims have potentially significant uninsured sums attached to them which are not budgeted for within the department and therefore potentially impact the Insurance Fund. One major multi-claimant claim could effectively wipe out the value of the Insurance Fund and require funding from other reserves.
In order to manage the risk, there has been an on-going debate with the Medical Director and HCS management about bringing the consultants onto the Government’s medical malpractice policy for their public work. The cost of such a move has been quoted at £225,000 if it takes place during 2021, rising to £450,000 for a full year effect. The Government Plan for 2022-24 already includes an amount for £450,000 for this cost in those years. This request is for the additional £225,000 not included for 2021. It is anticipated that discussions on this matter will take place with HCS colleagues and the policy be upgraded with effect from 1 July 2021. These discussions still need to be concluded.
Reduction in Budget for Insurance due to deterioration in Good Claims record (£150,000)
The current budget for insurance includes income of £150,000 which is a rebate from the Government’s insurers for its good claims history. This was originally built into the budget in the Government Plan 2021-24. However, as a result of one significant business interruption claim arising from COVID-19, the insurers have indicated that this bonus will not be paid in 2021 or future years. This request is for the replacement of the budgeted income from reserves for 2021. The budget will be re-scheduled through the Government Plan for 2022 onwards. The overall insurance programme is due for re-tender in 2022 and this will be factored into that process.
There is also an amount of £136,499 held by Lacey’s Advocates which is now not required. This will mean that T&E will receive additional income and the unspent balance of £269,187 in General Reserve will be transferred to the Insurance Fund as part of the Government Plan 2022-2025.
- Recommendation
The Minister is recommended to approve the allocation of up to £848,501 from the General Reserve to the Treasury and Exchequer (T&E) Head of Expenditure and the use of additional income of £136,499 received in T&E.
- Reason for Decision
Article 15(3) of the Public Finances (Jersey) Law 2019 states that the approval by the States of a Government Plan authorises the Minister to direct how an approved appropriation for a reserve head of expenditure in the plan may be spent (including on another head of expenditure) in the first financial year covered by the plan.
The current Policy for Allocations from the Reserve, presented to the States Assembly as R.60/2021, sets the requirement that all allocations from the General Reserve are recommended for approval by the Treasurer of the States, taking into account comments from the Principal Accountable Officer (PAO), prior to submission to the Minister for approval. Where a request for funding is made by Treasury and Exchequer, the Policy requires that the Principal Accountable Officer also recommends the request to the Minister.
If the Minister is minded to approve a funding allocation, the draft Ministerial Decision will be circulated to the Council of Ministers five working days before a Ministerial Decision is signed and published.
The Investment Appraisal Team has reviewed the business case for this request and recommended it for approval. Following this review, the Treasurer and the PAO recommend that the Minister allocates funding from the General Reserve.
Article 21 of the Public Finances (Jersey) Law 2019 states that if, during a financial year, the Minister is satisfied that the income of a States funded body or area of operation is likely to exceed the estimate for that income, the Minister may authorise the withdrawal of that excess amount from the Consolidated Fund during that year.
The total required for additional premiums in 2021 is up to £985,000. This will be funded by:
- the allocation of up to £848,501 from the General Reserve; and
- use of additional income of £136,499 held by Lacey’s Advocates for the Historic Abuse Redress Scheme, which is now not required.
The funding returned from Lacey’s should be returned to the Insurance Fund, which was the original source of the funding. An equivalent amount (£136,499) will therefore be held unspent within the General Reserve, and hence will remain within the Consolidated Fund. It will be transferred to the Insurance Fund as part of the Government Plan 2022-25.
- Resource Implications
The T&E Head of Expenditure to increase by £848,501 and the General Reserve to decrease by an identical amount.
£136,499 will be held unspent within the General Reserve, and hence will remain within the Consolidated Fund. It will be transferred to the Insurance Fund as part of the Government Plan 2022-25.
The recurring effects of this allocation and the additional request to top-up the Insurance Fund will be addressed and considered as part of the process to develop the Government Plan 2022-25.
This decision does not change the total amount of expenditure approved by the States in the Government Plan 2021-24.
Report author: Specialist – Business Cases | Document date: 16th July 2021 |
Quality Assurance / Review: Group Director, Strategic Finance and the Head of Financial Governance | File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DS, WR and SD\2021-0088 - Reserve funding for Insurance |
MD sponsor: Treasurer of the States |
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