Schools – What to Consider as Renewal Time Approaches
Let’s look at the 3 basic options available to schools and an alternative
- Self Insure – the cheapest at the outset and most risky, you pay for any supply staff you require, no funds returned to schools to offset these. Therefore this can also be the most costly overall.
- Commercial Insurance – Schools are covered for absences and make claims against the policy. In reality, and this is experienced all over the country, schools usually receive about 50% of the money they pay in premiums back in claimed amounts. If they are lucky they may get 55-60% over the long term.
- Local Authority Mutual Sickness Absence Schemes – As for commercial insurance but without the substantial overheads. Schools should receive up to 90% of their contributions back over the medium to long term. Therefore they should be the most financially beneficial, by safeguarding cashflow at the lowest possible cost, but, and this is a big but, only if the scheme is setup and run well.
- Standalone Mutual Sickness Absence Schemes – As above but run for and by a group of schools. Schools should receive over 90% of their contributions back over the medium to long term if implemented optimally in line with our “model scheme” template and become “Esphera Certified”. This ensures no school loses out disproportionately and minimises net long term costs for schools.
Considerations, Pitfalls and Gotchas for the Option You Choose
There is really only one way to compare these alternatives – look at money in and money out! Schools however, are under immense financial pressure and often mistakenly take the short term “which is cheapest this year” approach to cover themselves. This short term mindset can actually lead to long term losses which are not always apparent but the option that should be taken should be the one that leads to the lowest net cost not the lowest immediate charge. Choose the option that will give you back the highest proportion of what you spend. Smaller premiums may look attractive at first glance but if you never see most of it returned then the overall financial position is worse, it is much better to pay slightly more to get a higher proportion back. A simple example, where the figures are broadly representative of real life actual costs (all per FTE);
A school that regularly claims:
Mutual Scheme: Average Contribution = £1000 per year, Average Returned to School from Claims = £900, net cost = £100
Commercial Insurance: Average Contribution = £750 per year, Average Returned to School from Claims = £400, net cost = £350
A school that hardly ever claims:
Mutual Scheme: Average Contribution = £400 per year, Average Returned to School from Claims = £0, Average returned in Rebates = £360, net cost = £40
Commercial Insurance: Average Contribution = £200 per year, Average Returned to School from Claims = £0, net cost = £200
Self Insurance
This is an attractive option for larger schools. Larger schools can more easily cover absence with existing staff and this is normally fairly straightforward for short term absences. This means that schools can avoid using supply staff until they have a longer term absence. When this occurs then the school has to pick up the cost without any way of mitigating the cost. This may be fine for the odd long term absence as the cost of supply staff may still be less than the cost of absence insurance. However, given that there may be numerous staff at a large school it is quite likely that they will encounter a number of long term absences which can obviously have a dramatic effect on budgets. Also the larger the school the less likely it is to avoid long term absences.
Therefore, in our opinion larger schools would be best placed to cover against long term absences by purchasing cover but choose a high number of excess days which will keep the premium level down but ensure that catastrophic absences are guarded against.
For smaller schools, this is the least preferred option. The smaller the school the more difficult it is for schools to cover absence at a moment’s notice. Smaller schools have a higher likelihood of requiring outside assistance and therefore tend to incur higher supply staff costs. Because of the smaller school size these costs are proportionally higher and can impact school budgets considerably. Therefore as schools get smaller and the staff are depended on more and more this becomes an area of much higher risk to these schools and therefore the majority of smaller schools tend to ensure that they have some form of cover in place to guard against big budget hits.
Commercial Insurance
Of the 2 methods of obtaining financial cover, this is clearly the most expensive option, even though it may not appear so at face value. Insurance companies have to make money and have various regulatory overheads that schools must pay for one way or another. Insurance companies cannot afford to pay back most of what they collect and therefore they have various means to prevent payouts. There are usually plenty of terms and conditions and often caveats that go unnoticed when purchasing insurance. When the time comes to claim, there can be many hurdles to overcome and as well as being hidden in the contractual details there are often practical requirements that prove time-consuming to comply with and further prevent payouts.
Insurance companies sometimes appear to offer better premiums than mutual schemes. This may be because of one or a combination of the following
- Loss leading premiums – these are just to get you on board and will not cover their costs. If you never claim you may get a great premium but as soon as you start to claim the premiums will increase considerably. All schools have absences, it is just a question of when you will get hit with a long term one that really starts to cost you dearly.
- They know they can avoid paying out, such as by using shorter deadlines that you unsuspectingly exceed and therefore fail to qualify for payment, or requiring specific documentation to be submitted within a short timeframe.
- They know they can recoup their costs down the line.
- Poor mutual scheme management – Esphera knows what works and what doesn’t and we see plenty of schemes where the offering is not commercially practical. If a scheme is operated in a simplistic and unrealistic manner then the contributions to the mutual scheme will not bear any resemblance to the real risk and commercial insurers will be able to cherry pick the low risk schools.
We suggest that if you have a mutual scheme available, that you support it as best you can. Taking commercial insurance undermines local authority mutual schemes until there is no mutual scheme. When there is no mutual scheme available, it is open season for the insurers and premiums will increase due to the lack of a low-overheads competitor.
What to watch out for if commercial insurance is your only option as there is no mutual available:
- The local authority “recommending” a commercial provider. This normally only happens when the authority is receiving some form of commission. It has been known for some local authorities to close mutual schemes and recommend an insurer as they are able to make more money and do not have the effort of running a scheme. This means that not only are schools paying more for their cover from a commercial provider but that a proportion of that charge is going to the local authority, costing schools much more than necessary.
- Industry and trade bodies like the National Association of School Business Managers (NASBM) or National Association of Head Teachers (NAHT) “recommending” insurers. Before taking on board these recommendations check to see if the insurers pay any money to these bodies to be “recommended” or “approved” status and check to see what other checks have been made. Normally there has been no impartial evaluation as such so check for evidence that there is some quantifiable justification to their comments.
Local Authority Mutual Scheme
Of the 2 methods of obtaining financial cover, this should be the best over a number of years. It may not be the best on any individual year (due to loss leading by insurers) but over a period it will be the best as long as the local authority analyses the absence patterns correctly and sets appropriate contribution levels.
It is possible for schools to receive 90% or more of their contributions back and the scheme to still remain viable, but if operated poorly then too many low risk schools will over subsidise high risk schools. This results in low claiming schools being offered preferential rates by commercial insurers and thereby leave the mutual scheme. This can be overcome by a well managed scheme to ensure that the contribution/return ratio remains sensible and commercially realistic.
Esphera has a “preferred scheme” template which some local authorities follow and some do their own thing. We have found that those authorities following our template do well and the majority of schools are happy to stay in the scheme. Those authorities who try to implement a simple scheme which does not take account of the commercial competition tend to struggle with their schemes and some have closed as a result. The best schemes we are involved with have “Esphera Certified” status – find out more.
By working closely together, Esphera, your local authority and schools can achieve the optimal outcome. This is reliant however, on the local authority being prepared to run the scheme following our suggested guidelines (which alleviates competition from commercial insurers) as closely as possible, and on schools supporting the scheme knowing that the return and overall costs will be better over the long term if not necessarily in the short term.
Schools should remember that local authority mutual schemes exist to be non-profit making, are there to accommodate schools’ wishes and minimise adverse financial impact so return the maximum possible to schools. Compare this with commercial insurance which is there to make a profit from its customers, and therefore is inclined to pay back as little as possible.
If you do not have a Local Authority mutual scheme available to you, but you know that there are schools in your area that would like to be part of one, there are now 2 options where we can help
- It may be possible for us to either set up a standalone scheme for you or to find another successful scheme which you can join depending on circumstances.
- Or best of all, from April 2025, you can join our new miniMAX Virtual Mutual scheme – click the image below to find out more
