11 September excuse won't always wash

The problems facing insurance in the public sector began long before September 2001, argues Alan Woof

In these pages last week it was noted that local authorities face rising insurance premiums, most notably as a result of the rising cost of reinsurance after

11 September.

But, it is important that we, as an industry, do not allow those appalling events to become a catch-all excuse for the current hardening of the market.

The public sector faces many unique issues. Take schools. What other type of building has seen the cost of serious fires more than double in just two years? School arson is a significant factor in the public sector insurance equation.

The cost of school fires rose from £42m in 1999 to £87m in 2001 - an increase of £45m.

Or consider the rise in liability claims - the so-called compensation culture.

This week The Times highlighted fears for the festivities around the Queen's golden jubilee.

The main concern identified is the need for public liability insurance to cover street party organisers from claims from their party- going neighbours - as revealed by Insurance Times last week. This just wasn't an issue at the last jubilee 25 years ago.

Similarly, the increase in claims for issues such as workplace stress began in the public sector.

The impact of the introduction of conditional fee arrangements has also hit public authorities.

The rules for property insurance have changed as a result of the spate of storms and floods that have thrown the record books out of the window.

Yet against this seemingly bleak backdrop it must also not be forgotten that the insurance market is cyclical by nature. Premium levels nine years ago were higher than they are today.

The danger of trying to undercut sustainable premium levels has been illustrated by the failures of Independent and Chester Street.

If we allow 11 September to carry the can for all our woes, we will be guilty of sweeping under the carpet a wide range of truths that need to be told. We will also miss an opportunity to explain the importance of risk management in reducing exposure, and therefore future premium increases.

The reality is that the price of insurance is currently on an upward trend, in contrast to recent downward spirals.

This is an inevitability in a world where we must make judgments about the best way to safeguard our customers from future claims. That is the business we are in.

If we were not making tough decisions now, it would be our customers, and ultimately taxpayers, that would be left to pay the bills for our future errors.

  • Alan Woof is underwriting director at Zurich Municipal.