Small-claims mutual fund makes a dent in cover charges

三月 26, 1999

Under UMAL, institutions contribute to a pool that is used to pay their small claims, thus cutting out the insurer and the broker. Elaine Carlton reports

University insurance is big business, and the arrival of a newcomer to the market is bound to cause a stir.

The latest is UMAL, a concept under which higher education institutions unite to create a joint pool of funds to pay for small insurance claims. Developed in Australia, its aim is to alter the way British universities and colleges obtain insurance.

Capitalising on research showing that most claims are for less than Pounds 250,000, Susan Wilkinson, UMAL's chief executive, adapted and brought to Britain the Australian model. Since 1992, she has signed up 36 universities and colleges - a quarter of them individual colleges of the University of Wales.

"Instead of an insurer dealing with the small claims, the university contributes to a central pool and administers the claims itself," Wilkinson says.

Once UMAL's board has decided that there will be no more claims on a specific insurance year, it closes the year and distributes any cash remaining in the pool to the members.

As a discretionary mutual, UMAL could choose not to pay out for a claim and not be forced legally to do so. Wilkinson insists that this would not happen. "It would be very unusual for the mutual not to pay out for a claim. There are even some cases when we can pay out because we are a mutual whereas a traditional insurance company would not."

Many universities fear that if disaster struck and the pool was empty, they would be asked to cover the costs. Wilkinson says UMAL has bought a stop-loss insurance policy, which insulates the members from further calls.

Many types of cover - such as legal expenses, motor and travel policies - are not included in the pool. For these, UMAL promotes one of its other companies, UM Services, to place the cover on the traditional market. The company earns a commission for the cover it places.

Some are unconvinced of UMAL's benefits. Tony Lea, insurance expert and clerk to the board of governors at Wolverhampton University, said: "I am not sure what justification there is in having one provider for small claims and one for catastrophic losses."

UMAL is marketing a new disaster and contingency plan to attract more members. It has also set up a company (UMALT) that allows institutions to insure against terrorism by contributing to a separate joint pool. Contributions are a third of whatever Pool Reinsurance Company Ltd, the government-backed company, would charge, and discretionary cover is Pounds 75 million per loss per member.

The fee for placing an individual university's insurance cover can be as high as Pounds 35,000, so it is hardly surprising that the industry is so competitive.

UMAL's arrival has upset a number of the big brokers and direct insurers. "We have taken business away from the broker market, as they are no longer getting their fees for being go-betweens," Wilkinson says. "We will not deal with brokers."

The two main brokers in the sector are AON, which claims a 30 per cent market share, and J&H Marsh & McLennan, which says it has 46 universities and colleges on its books out of a total of about 110. Both concede that they have lost business to UMAL.

But they believe they are winning back universities that are looking for a broker as an adviser that can outline the cover they require and lead them through the placing process.

Tony Barraclough, director, education at AON, says: "In its early years, UMAL was successful in picking up business from different brokers, but recently they have suffered their losses.

"One of the advantages of having a broker is that he or she will give the university access to the market as a whole."

A university's business is worth from Pounds 10,000 to Pounds 35,000 in fees to the broker, but a conglomerate of universities is worth far more.

Graham Peck, associate director with the education division at J&H Marsh & McLennan, says: "We have lost out to UMAL in competitive tendering, but we have also recently gained some business from them."

One insurance company has been a big beneficiary of UMAL - Royal Sun Alliance, the market leader in higher education. It has struck a deal with the mutual that means it gains from business picked up by UMAL. It is one of a small number of insurers that UMAL uses to place insurance cover outside its remit.

"UMAL has been quite successful in developing its expertise. We have a partnership relationship with them. UMAL deals directly with the establishments, and we do the risk carrying," said David Geer, manager for global risk management at Royal Sun Alliance.

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