OUTSOURCING THE INSURANCE FUNCTION IN UNIVERSITIES

1
OUTSOURCING THE INSURANCE FUNCTION IN
UNIVERSITIES

• A Presentation to the
• AURIMS Quarterly Meeting
• at Bond University
• by
• Tony Burrett ANZIIF Snr Assoc
• September 2007

2
The Current Situation

• May 2006 survey of AURIMS members by John
  Clements UTas
• Summary of responses as to Location
• Finance/Financial Services 10
• Risk Management 4
• Other Legal/OHS 1
• Most universities have one FTE staff handling
  insurance
• But .. insurance professionals are a rarity
• Risk management omitted as it remains a low key
  activity in many universities and is routinely
  assigned to another area of the university

3
Insurance Duties

• Arrangement Administration of Insurance Program
• Claims Handling, Claims Monitoring Statistics
• Miscellaneous including conduct of tenders for
  appointment of insurance broker, co-ordination of
  underwriter surveys, compliance with fire
  protection, security and other statutory/internal
  requirements, deal with internally generated
  enquiries, examination of contracts and
  agreements, preparation and maintenance of
  internal insurance and claims manual, set up and
  update intranet web site, conduct information
  sessions and/or presentations to the university
  community on university risk financing and attend
  AURIMS, Unimutual, RMIA and other seminars and
  conferences
• We do a lot of very important things, some of
  which are taken for granted, for the universities
  we represent

4
Costing the Insurance Function

• Salary 60,000 pa grosses up to around 84,000
• depending on how on costs are attributed
• The majority of universities engage an insurance
  broker
• Brokers fees typically 16,000 for partial
  appointment or
• 66,000 for whole account appointment
• Source AURIMS 2006 Benchmarking Survey
• Universities spend approx. 100,000-150,000 per
  annum on the insurance function

5
Outsourcing as an Alternative

• Outsourcing should be carefully considered as a
  way of alleviating the cost of
• the Insurance Function and to help overcome the
  knowledge gap
• There are at least two outsourcing alternatives
  available, ie
• Engage an external consultant, eg locally based,
  recently retired insurance
• professional who has set up a small business
  utilising skills gained in
• his/her previous career
• Contracting with an insurance broker to absorb
  defined roles on
• behalf of the university
• Benefit - The university will gain access to
  Professional Indemnity insurance
• effected by the consultant or insurance broker in
  the event of a breach of
• professional duty although premium is part of
  overheads and the cost is
• ultimately passed on to the university
• An 1800 number, linked to a call centre, would
  facilitate the
• consultant/insurance broker becoming the
  universitys contact
• with respect to queries and claims

6
Knowledge and Experience

• Consultant will have sound technical expertise
  and up to date knowledge of prevailing insurance
  market conditions. University will benefit from
  continuity of service provider but is vulnerable
  in the event of absences on account of illness or
  for other reasons. Consultants current market
  experience will erode surprisingly quickly
• Insurance broker will bring its full resources
  into managing contracted duties, eg account
  manager, internal broker and claims specialist.
  It will always be in step with current market
  conditions. Possible downside in that staff will
  come and go and service standards will wax and
  wane according to the expertise and commitment of
  the individuals concerned
• If consultants/insurance brokers make mistakes
  that are not easily picked up by the universitys
  personnel, the consequences could be adverse in
  the extreme for the university concerned. Checks
  and balances would need to be instituted at the
  university end of the chain so as to reduce the
  likelihood of catastrophic errors
• In the event of conflict of interest situations,
  the consultants/insurance brokers first loyalty
  is to their own company or employer
• A university employee has an obligation to serve
  the university
• and only the university

7
Outsourcing Assumptions

• Consultant/insurance broker may only need to
  spend 2/3rds of time to do the same work This is
  not necessarily conceded
• Additional reporting by consultant/ insurance
  broker increases actual time spent on university
  affairs to, say, 75 of university staff time
• If average 37 hours per week and 50 of duties
  outsourced, eg general insurance enquiries and
  claims, time spent by consultant/ insurance
  broker will be, say, 14 hours per week
• If consultants agreed rate is 115.00 per hour,
  consultancy fee before GST would be /-
  83,720.00 14 _at_ 115.00 x 52
• Consultant could not personally perform insurance
  broking and placement services so insurance
  broker still required to do these tasks
• Insurance brokers fee variable according to
  seniority of person concerned and typical rates
  are 250.00 per hour for senior personnel and
  100.00 per hour for general staff. If senior
  staff spend 3 hours per week and general staff
  spend 11 hours per week on average, fee before
  GST would be /- 96,200.00 3 _at_ 250.00 x 52, 11
  _at_ 100.00 x 52
• Broker still requires fee for insurance broking
  and placement services

8
The Maths
9
Conclusions

• Outsourcing is superficially attractive and there
  is a temptation to shed the responsibility for
  insurance entirely. However, some tasks can only
  be done by university employees and others that
  can only be performed by external parties under
  very close supervision.
• Transition to a partly outsourced mode cannot be
  justified if cost of doing so is greater than if
  the functions were retained by the university
  although the transfer of low level activity that
  relieves university staff of mundane duties, eg
  straight forward claims handling, could be
  desirable
• There is no barrier to engaging Specialist
  consultants on a one off or project basis to
  supplement in house skills and enhance the
  university officers knowledge
• Outsourcing the insurance function, except in
  some specific instances, would lead to
  fragmentation of activity to the detriment of
  attainment of the universitys core objectives
  and, in the final analysis, outsourcing is
  neither an economically sound strategy nor
  ultimately beneficial from the knowledge
  perspective
• Some insurance duties have to be retained within
  the university.
• It is, therefore, strongly recommended that
  universities
• retain their discrete in house insurance
  capabilities
• and only consider outsourcing in limited
  circumstances