3 October 2016Devolution - Risks that must be considered to ensure that the new vision succeeds.
Devolution brings with it opportunities for Local Government, with greater powers to determine local control over matters such as Healthcare, Transportation, Housing and more.
At the same time we continue to see cuts being made in central government funding, which has been continuous since 2010, and it is expected that local tax raising powers will be granted to areas committing to devolution – starting with Liverpool in 2017.
As of June 2016 there are 11 current devolution bids underway ranging from the South-West to the North-East. No two deals are the same and there are many further conversations ongoing with very different views being shared by organisations that may eventually have to work together.
Our expectation is that the current legal entities will remain in place and that there will be a new Combined Authority entity comprised of various partnership members that is enabled to decide on the new powers granted through devolution.
This creates risks that must be considered to ensure that the new vision succeeds and that operational blockages are removed.
With any shared working there are many risk management and risk financing issues that need to be considered.
What new risks are you taking on?
Each devolution deal is different. Involving your risk and insurance team(s) and your advisers can ensure these are reviewed and that you take the right risk financing decision on each risk. It is also imperative to hold a new risk management strategy for the new organisation and re-visit the strategies in place for each of the partners.
Insurance cover for the new legal entity
It is likely that the new entity will require various insurance policies. Directors & Officers Liability may need to be in place prior to the entity taking formal legal status as decisions may be being made already that could open up legal liabilities. If you are advising on a Combined Authority now and have no separate cover in place you could already be personally exposed.
Whose employee are you anyway?
Are roles being shared across organisations and/or the new entity? This could create gaps or duplications in insurance cover particularly across Liability and Fidelity Guarantee policies. A gap analysis to identify the insurance cover across all partners, which providers are being used, what excesses and limits of indemnity apply and recommending solutions can resolve this.
I say yes, you say no
Where does decision making sit within the new entity and across the existing organisations? Do we need consider the timescales for decision making if some decisions have to be referred to the combined authority as well as local partners?
You may retain substantial historic risks for many different partner organisations
These can sit on balance sheets for many years. It is possible to ‘wrap’ up all historic risks and transfer all of these to an insurer to remove them from your balance sheet.
Are you exposed to employee benefit risks?
Whilst TUPE may apply, you can encounter substantial liabilities to meet existing benefits. Can you obtain solutions to meet these liabilities or conduct consultation exercises to develop alternatives?
Who is leading on risk and insurance?
Setting a clear vision on a person/organisation to lead will provide strength to the new combined authority as well as potential savings across the membership. Centralised teams can deliver savings, greater support and learning but there is a need for localised engagement too, particularly on claims and day to day insurance issues. Creating an effective solution takes some planning but can deliver great outcomes.
Can the group use its leverage to obtain better solutions?
Risk and Insurance could be an area for review to obtain more effective risk financing, particularly now that Insurance Premium Tax will soon be at 10%. Tendering together could achieve savings, particularly if there is agreement on the programme structure and commitment to purchasing as a group.