Insuring your charity is a major management decision. To help you get it right, click on the headlines below and read about the different aspects of charity insurance.
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Charities are under enough financial pressures as it is without suddenly finding themselves having to shoulder the burden of paying an employees for illness or injury, or, in a quite different scenario, having to pay an employee in an industrial relations situation. While these are indeed very different matters they both relate to the charity's vulnerability to being financially at risk due to its role as an employer.
This is why I want to talk about employers' liability insurance and employment law protection insurance for charities.
Employers’ liability Insurance is essential for charities which are looking to protect themselves from claims made by employees. This should be the first cover any employing organisation should ensure that that it has and anyway it is a legal responsibility. The law says you must have cover with a minimum £5 million indemnity limit. So charity employers, there is no getting away from this.
However, in more recent times, one is seeing significant increases in employee claims against charities in other areas. This is due, in the main, to the growth of employment law protection legislation. The role of charities as employers is becoming increasingly challenging in relation to legal liability, quite apart from the increasing pressures on personnel management skills which come with the growing work demands on charity front line workers.
So now more than ever, it is essential that you have the right employers' insurance cover in place for your charity, and this should include employment law protection insurance.
WHAT IS EMPLOYERS' LIABILITY INSURANCE AND HOW DOES IT COME? If you employ staff, or if you control or oversee the way someone works, you need to have employers’ liability insurance. Employers' liability Insurance protects your charity against the cost of compensation claims arising from employee illness or injury, sustained because of their work for you.
Employers’ liability insurance for charities can be obtained either in an overall insurance package policy for charities or indeed the care sector if this includes the charity, or through a similar combination of separate policies. Moving away from this, it can also be obtained in conjunction with public liability insurance in a combined liability policy. It is rare to be offered employers’ liability insurance in isolation. There are specifically charity-friendly insurance arrangements around and it makes sense to look for these.
EXACTLY HOW MUCH COVER DOES A CHARITY EMPLOYER NEED? The law says that employers’ liability insurance should have a minimum indemnity limit of £5 million. However, what you will find is that for most sectors, including charities, the indemnity limit is £10 million. This figure will cover your legal liability for any employees (including volunteers under your direct control) who are injured whilst they are in your employment.
The indemnity limit works on an any one claim basis. What this means is that, in theory, you could have several claims of up to £10 million in any one policy period.
There are several extensions that are generally automatically provided with this type of cover. These are principally legal costs and expenses that may arise from defending criminal proceedings, brought forward for a breach of the Health and Safety at Work Act. Your employers’ liability insurance will have a built-in limit for this extension (a maximum £250,000 inclusive of limit).
WHY DOES A CHARITY NEED EMPLOYMENT LAW PROTECTION INSURANCE (ALSO KNOWN AS EMPLOYMENT PRACTICES LIABILITY INSURANCE)? Like any organisation which employs people, charities are exposed to the risk of a former or disgruntled employee seeking compensation.
This may involve a tribunal appearance and in many cases, it will involve the Advisory, Conciliation and Arbitration Service (ACAS). Unfortunately, it is well known and is a matter of record that charities, as a sector, are one of the main participants in industrial tribunals
Common areas of industrial tribunals will include allegations of:
- Constructive dismissal.
- Unfair dismissal.
- Redundancy issues.
- TUPE (Transfer of employment) issues.
- Racial, religious, disability, or sex discrimination.
But it is not only employees who may instigate a claim. As a charity, you could face allegations from:
- The Health & Safety Executive.
- Regulatory bodies and similar organisations.
WHAT SORT OF AREAS SHOULD YOU SEEK TO BE COVERED FOR AS A CHARITY EMPLOYER? Whether you are looking at your current insurance cover, a policy renewal or your first policy, you need to look for, as a minimum, cover for:
- Employment disputes.
- Employer helpline and guides.
Examples of exclusions
As with any insurance policy certain risks or events will be excluded, some examples being:
- Dishonest or fraudulent conduct by the insured.
- Deliberate acts.
- Voluntary assumption of liability.
- Circumstances known at inception (in relation to when the period of insurance actually began).
- Injury/property damage.
- Takeover, merger or liquidation.
- Policy excess (the level at which the insurer pays out will vary from insurer to insurer).
Charities, by their very nature, are there to help their service users. This is their prime function, and can often mean that the trustees, management or staff don’t have the necessary expertise needed, in the areas of human resources, and health and safety. Neither would they have an adequate in-house legal capability to deal with these contentious and ever more litigious areas.
Consequently, it can be difficult for a charity to keep up with the growing body of legislation and the frequent changes. This may be particularly relevant to smaller and even medium sized charities.
You may already have a conventional commercial legal expenses policy. However, a policy of this type will only provide cover where the insured party has a good chance of winning a case. Employment law protection insurance will provide cover regardless of the chance of success.
In addition, it is general practice that the insured’s legal costs and additional expenses are covered, in respect of them having to attend employment tribunals, or health and safety investigations (subject to the policy terms and conditions).
It is therefore advisable, in this current climate, that charities have in place relevant and adequate employment law protection Insurance to cover them, should the worse happen.
HERE ARE SOME EXAMPLES OF RECENT CLAIMS. COULD ANY OF THESE HAPPEN TO YOUR CHARITY?
• Allegation of unfair dismissal and disability discrimination. In this case, the claimant requested a new position with fewer hours and less responsibility at another of her employer's sites, or she would resign. The allegation posed was that she was overburdened with work in her current position. There were no other positions available and a claim for unfair dismissal and disability discrimination followed, costing in the region of £15,000.
• Allegation of constructive dismissal. A community support worker claimed constructive dismissal because the charity allegedly failed to deal with his concerns about his working arrangements. He claimed that his working arrangements made it impossible for him to continue working. One allegation stated that he had not received training on working with paranoid schizophrenics. This claim cost in the region of £3,000.
• Under-performance leads to dismissal. The chief executive of a charity had concerns in relation to its marketing director’s performance. As a result, the charity pursued the matter through its capability procedure. The outcome was that the claimant was dismissed on grounds of insufficient capability. This claim cost in the region of £66,000.
Insurers which provide employment law protection insurance cover will also provide a legal helpline, so that at the first sign of a potential dispute advice can be sought to ensure that the correct procedures are put in place and followed. (Insurers will generally make this a condition of cover.)
HOW DOES A CHARITY OBTAIN EMPLOYMENT LAW PROTECTION INSURANCE? There are two recommended routes to obtaining employment law protection cover:
AN EXTENSION UNDER AN EXISTING CHARITY OR CARE SECTOR POLICY OR A CHARITY COMBINED PACKAGE POLICY. This would generally be the simplest way of obtaining this cover, if your current insurer provides this cover option, and that the cover offered meets your requirements. If the cover offered doesn’t meet your charity's requirements, it may be prudent to move to a suitable alternative insurer which can provide the cover, generally at your next renewal date.
A MANAGEMENT LIABILITY PROTECTION POLICY (MLP). This can be an attractive option, as you will generally get a selection of additional covers included, examples being: directors' and officers' liability; trustees' indemnity; social media crisis and public relations costs; bolt on dedicated legal human resources health and safety assistance
At the top end of the market you will get unlimited free additional services such as: HSE analysis; human resources and employment advice; taxation and finance issues; environmental impact issues; compliance; corporate governance; risk management advice.
You can also obtain employment law protection insurance as a stand-alone policy. However, this is not always suitable for charities.
WHAT IF CHARITIES HAVE VOLUNTEERS? ARE THEY COVERED? When looking at your current insurance policy or if you are considering a new one you may be wondering if your volunteers will be covered. You can rest assured that volunteers are covered under employers liability insurance. A common insurance definition of an employee is likely to include the following.
Definition of employee
An employee means any person (other than a director of your charity) who is or was, or who may become at some time in the future:
- Under a contract of service or apprenticeship with you.
- Under a work experience or similar scheme, or supplied to you.
- Hired in or borrowed by you.
- A self-employed person.
- A volunteer who is working for you under your direct control, relating to your business, and they are normally resident in the United Kingdom.
However, if your volunteer is on your premises but is not actually volunteering at that time, they would then be treated as a member of the public.
When it comes to volunteers, employment law protection is not relevant as this covers issues arising out of a contract of employment, which a volunteer would not have. Therefore, a volunteer cannot claim for unfair dismissal, nor can they make any other claims which would fall under employment law protection.
Insurance broker reviews are usually conducted because they are driven by corporate governance responsibilities, industry practice or to ensure that your charity is paying the most competitive premiums. Or it could be because the service provided by your current broker may be unacceptable or they are no longer suitable.
It is important to establish the reasons for conducting a review of an insurance programme and/or a broker, as the conclusions reached could lead to a better review process and hopefully enable your charity to appoint the most appropriate broker for your needs. Whatever the reasons for the review, there are certain steps that could be followed to make the whole process easier and less stressful for all the parties involved.
If your charity is looking to reduce premiums and indirect costs, such as uninsured losses, and the overall focus is on cost not service then you should choose a costed review. With this type of review you will receive binding quotations and the process is more closely aligned to the actual renewal of your current insurance programme. The decision to review can also be made closer to your renewal date but shouldn’t be less than 10 weeks prior.
The final presentations by your shortlisted brokers should be conducted in the fourth week prior to your renewal date and the appointment should be made in the third week, allowing enough time for the broker to ensure cover is in place.
Alternatively if you are looking for a broker which understands your charity, and is able and willing to align the insurance programme to your key risk exposures, minimise uninsured losses, offer risk management audits/consulting facilities, staff training, claims management and your review can start at least 14 weeks before your renewal date, then your organisation might like to consider a conceptual review.
The advantage of a conceptual review is that the focus is on the broker’s ability to understand your organisation and ensure you are properly protected. Upon appointment it will negotiate with the insurance market on your behalf.
Having one broker approaching the market on your behalf will protect your standing amongst insurers and avoid any mixed messages.
Once you have made the decision as to which type of review you are going to conduct, and you have established a timetable that allows the process to be completed in timely fashion without any undue pressures, you can start the process.
INFORMATION PACK.To enable the participating brokers to conduct their review it will be necessary for you to compile an information pack. Compiling all the information might involve other parts of your charity so make sure you do this in advance of the next step.
The pack should include as a minimum:
• An up to date register of insurances, and copies of up to date policies, if available.
• The latest annual report and accounts.
• Any literature from the charity that is available to the public.
• Any risk management documentation, such as risk registers and business continuity plans.
• Organisational structure, including contact information for the different functions carried out within the charity.
• A timetable of the review process.
• Claims information for the last three (or ideally five) years.
CHOOSING A BROKER TO PARTICIPATE IN THE REVIEW. Many brokers will be keen to compete for your insurance business, but not all will be suitable.
Here are some guidelines that might help you decide which one to choose:
It is advisable to only select brokers which can fulfil your review criteria in terms of scope of services. It is better to choose a broker which can demonstrate experience of managing the insurances for charities of your size and complexity, rather than a broker which specialises in, say, household insurance.
If possible, try to avoid selecting brokers of a similar size or profile. The broking market is highly competitive, and there will be little to choose from if they are in the same guise.
Smaller brokers are generally more customer focused and often employ individuals with broad skill sets, whilst larger brokers have in-house facilities, but can be less customer focused and have greater staff turnover. Similarly, "niche" brokers may offer greater experience in the charity sector, but can lack the lateral thinking of a broker with a broad range of clients.
Select no more than five brokers and ideally no less than three. Some brokers will view competing with too many other brokers as nothing more than a "beauty parade", and may decide not to participate. Also, if there are only a few insurers which have the capability to insure your charity, try to apportion different insurers to each broker, e.g. when asking for examples of cover and pricing.
Recommendations always work well, so ask other charities of a similar size and needs which broker they use, and why.
INVITING YOUR CHOSEN BROKERS. The format of your invitation can be either formal (written) or informal (verbal). To aid the process you may like to ask the invitees to address the charity's specific areas of concern, though the report should not restrict itself to the issues you raise.
You might like to ask for:
• Comments on risk issues identified and how your current insurance programme is aligned with those risks.
• How the broker intends to help your charity manage its risks effectively.
• Any proposed improvements to the current insurance programme.
• Relevant expertise in your sector.
• Details of the broker's proposed team, including CVs and referee details.
• Details of risk and claims management facilities.
• Information on the broker's company history, customer service processes, and how the broker's efficiencies could benefit you.
• Proposed fee and service level agreements.
The invitation should also include who to contact in the charity, your timescales, the format in which you wish to receive the report, and the number of copies required.
In addition it should be made clear that the review is being conducted at the participating brokers’ cost, and acceptance of the invitation is acceptance of this condition.
MEETING THE PARTICIPATING BROKERS. The objectives of the meeting are for you to gain a first impression of the participants and for the brokers to ask you about the organisation. At this meeting it should be the broker who asks most of the questions. Your opportunity to ask questions will come when you receive their proposals or at the presentation stage.
CHOOSING THE RIGHT BROKER. Having considered the proposals, you may or may not choose to select a short-list of brokers, and invite them to prepare a presentation. The presentation should include the service team proposed by the broker, and should focus on perhaps two or three key areas only (either of your choice or the broker's).
Ideally, the presentations should be short, maybe 20 minutes plus questions afterwards, and conducted on the same day, to allow a fair and objective comparison. To ensure a "level playing field", you may wish to set out explicit terms for the presentation. For example, no PowerPoint presentations or no more than three attendees, etc.
Once the presentations have been completed you should be in a position to appoint or re-appoint your broker. To help you with the final decision you might like to rate them on things such as: the knowledge of your charity and its purposes/beneficiaries/clients, understanding your needs, the ability to design a programme that responds to those needs, their willingness to be held accountable, technical expertise, claims support and so on.
Choosing the most suitable broker can be a daunting task but following this process should make it easier and less stressful. However, working with a broker which has a detailed knowledge of the way your charity operates, taking into account your objectives, mission and strategy, the nature of your activities, applicable legislative and regulatory requirements, and identifying lessons learned from any past events will lead to robust insurance and risk management which would help avoid a crisis becoming a reputational disaster.
Correct insurance cover for a charity goes a long way to helping things move along quickly in the right direction should the worst happen.
Charities have a moral and legal duty to ensure that everybody who works for them is safe in the field. Part of that duty is exercised through sensible precautions and good risk management. The other part is through protecting them with appropriate insurance cover. In a poll, 67% of charitable organisations felt that insurers did not understand the risk issues faced by the charity sector and 75% believed that costs could be cut if risk issues were successfully communicated.
Let me give you an example of a most recent conflict and how having appropriate insurance cover can make all the difference to foreign nationals caught up in the middle, and how good insurance brokers with experience of the charity sector understand the risks charities are being faced with.
The political history of modern Sudan has been dominated by conflict between the Islamic north and the predominantly Christian, African south. Following a referendum in 2011, South Sudan became an independent state. A number of issues were left unresolved upon southern independence including border demarcation, citizenship, ethnic rights and oil exports. Violent clashes quickly escalated between north and south which led to a humanitarian crisis.
Many charitable organisations are working in both Sudan and South Sudan with the aim of helping the Sudanese people, whose lives have been badly affected by the consequences of decades of conflict, including the prevalence of disease.
There was a charity whose aim is to reduce the suffering caused by tropical diseases in some of the poorest communities around the world. Their operations take them where help is needed, including South Sudan.
Comprehensive personal accident and travel insurance cover was arranged for all their overseas staff and expatriates, including emergency evacuation expenses and access to advice from a specialist security company which monitors events around the world 24 hours a day.
In addition, international private medical cover was put in place to give staff access to NHS style medical treatment around the world.
When violence flared again in South Sudan in December 2013 the charity were thus ready to react quickly to secure the safety of their staff.
How the insurance policy responded
In mid December 2013 the situation in South Sudan deteriorated. There had been a coup attempt on the night of 15 December by the opposition in Juba, focused on the army barracks and the president’s compound. Juba was under military curfew and soldiers were patrolling the streets. Check points were set up and anyone leaving their home or compound was threatened with arrest. The airport and the land borders were already closed.
While foreign nationals might not be directly targeted in the fighting, they would be exposed to the risk of incidental violence.
The charity contracted their insurance broker in the UK and were referred them to a specialist security company to which their insurance gave them access. An initial call from the charity to the security company was received on 17 December, stating that they had nine staff in Juba, the capital of South Sudan, and two in Arwil, north of the country, all seeking advice on the developing situation.
Given the spread of locations, the priority for the security company was to make sure everyone was in a safe location and the information was reported back to the charity's headquarters. The security advisers continued to feed information in both directions while experts made plans for a possible evacuation.
Within 48 hours the experts had secured an aircraft at Juba airfield to transport the charity’s staff to Kampala in nearby Uganda. The UK and US embassies were urging the South Sudan president to reopen the airport as soon as possible to let the trapped foreign nationals leave. After three nights of fighting the airport reopened on 18 December. Following the reopening, all parties agreed that foreign nationals should be evacuated whilst the airport remained open. The advisors then subsequently coordinated the full evacuation of the staff out of South Sudan.
This flight was amongst the first to leave Juba, but the charity's staff in the north of the country were diverted to Wau because an aircraft had crashed on the runway in Juba. The advisors therefore organised an alternative aircraft for the next day, to take them on to Kampala and onward commercial flights to home destinations.
This is just one example of a rapid deteriorating political situation and a vivid example of how a prompt reaction and speedy communication can help solve even the most complex situation.
The costs of the evacuation were all covered by the insurer and are set to exceed £20,000.
Why insurance is important
Insurance plays an important part in transferring the risk for any charity, and forms part of any comprehensive risk identification, treatment and management programme.
People are sent to potentially dangerous locations to make a difference on behalf of people in need, and the risk to them of injury, illness and disease needs to be identified and managed.
Whilst evacuation cover is available from many insurers, the policy detail and aptitude of their security advisers will vary. Ensuring that the right cover was in place to reflect travel to "high risk" locations, as well as being on hand to help when the worst happened, made the difference in this case.
The insurance policy put together by the broker ensured the safety of the charity’s staff when the political situation deteriorated. If this cover was not in place, or it was not adequate, then they would have been on their own in arranging the evacuation.
In a state of chaos, one can only imagine how long it might have taken to arrange the evacuation and risk missing the window of opportunity when the airport was opened.
Not to mention the costs involved in such an operation!
However, for many of these workers, securing international private medical insurance cover to ensure they can be cared for in the event of illness or accident can be as problematic and difficult as the work they themselves are doing.
War zones are occupied not only by traditional armies, but also by huge numbers of voluntary organisations involved in post war reconstruction. As a member of this latter group, it is vital that an expatriate charity worker can carefully choose an international health policy which is tailored to suit his or her needs and which takes into account the particular dangers of working in a country such as Iraq or Afghanistan. Finding the right policy is not always straightforward, as many insurers have special clauses relating to war and terrorist threats.
Policies which include limited cover against terrorist attacks are available, but with conflicts not solely confined to war zones nowadays, effective cover which reflects this new global reality is now ever more important. Nearly a third of brokers questioned in a recent research survey said that they would not consider a policy if it did not provide some level of war or conflict cover, for example.
Ideally a policy should have a "stand out" benefit that really makes a difference to those expatriates living and working in the world’s hot spots. For these individuals, it really does help to have "passive war" cover including war and terrorist attack, in contrast to where policies may often have a full war risk exclusion.
Passive war cover is likely to be of particular interest staff in aid charities and those involved in rebuilding work where a conflict has occurred or is still going on, e.g. in Africa, the Middle East and even Afghanistan. Overall, the full range of health insurance services should be available, including hospital benefits and evacuation, in the event of injury by terrorists or as part of a broader war conflict.
Evacuation is likely to be particularly relevant in conflict zones, where local medical facilities may be damaged or supplies of medication and blood for transfusions may be an issue.
If that's all you do, however, it's worth digging out that document to make sure it does everything you expect of it. Many off the shelf policies have gaps in their cover, and it can be the case that some charities have been sold cover which isn't actually necessary for their needs and just adds unnecessary cost.
The key thing is to get the correct advice for your charity and a proper assessment of risk, which might require additional cover to what is outlined below. As a pre-emptive measure, proper governance and sensible risk management practices should mean you never have to rely on insurance. If you do though, it's worth knowing you're properly covered. Outlined below is a quick guide to the basics.
PROPERTY DAMAGE. This covers you for the basics like subsidence and against losses from theft and damage (say a lorry crashes into your building, for example). Make sure your policy also covers you for things like damage to or theft of fundraising stock, losses from dishonesty, and cash in the office.
BUSINESS INTERRUPTION. If you can't get into the office because damage to property nearby means the street is cordoned off by emergency services, for example, you'll be covered. It also covers power failures, loss of water supply and so on, if they're caused by damage to nearby property. Likewise, in the event that a property near yours is damaged and it stops people coming to the area, and that has an impact on your operations, a good policy will provide recompense.
EMPLOYERS' LIABILITY. Unpleasant thought it may be, this is an important one and covers you for any financial liabilities resulting from the death, injury or disease of an employee which occurs in the course of their work.
GENERAL LIABILITY. This is similar to the above, but refers instead to death, injury or disease caused to members of the public, or any loss or damage caused to their property. It also covers the same things if they're caused by goods you sell or supply.
TRUSTEES' AND INDIVIDUAL LIABILITY. There have unfortunately been cases where individuals within charities have taken advantage of vulnerable people the organisation is meant to protect. Court action and the resulting financial implications can be very expensive, which is what this feature is designed to cover. It includes trustees, directors and other employees, and covers "wrongful act, error, or omission" for which they may have been responsible.
INTERNET AND EMAIL. Misplaced or stolen data happens to the most well resourced organisations, so if it was to happen to a charity and resulted in legal action the costs could be punishing. Make sure your insurer has you covered for data breaches or thefts, and that you're covered for legal defence and other relevant costs (if your charity has a particularly high profile, for example, you might find it necessary to hire a PR firm to help defend your reputation in the media).
You should also ensure you're covered for other legal expenses, if, for example, you're the chief executive of a charity and find yourself personally subject to legal action. Employee disputes can also incur major costs, particularly if they end up in an employment tribunal, so any insurance products you consider should also take account of that. As with anything, an insurance policy is only as good as the effort you put into it, so it's worth taking at least a little time to get it right.