Risk and Insurance Q and A Guide for Trustees and Charities

Q1) What Is the Point Of Insurance? All organisations face Risk. Risk can lead to an organisation suffering a “Loss” (or incurring Liabilities).Large and/or sustained Losses will erode the organisations Balance Sheet and eventually lead to the organisation collapsing.Insurance involves the organisation protecting its assets and resources by transferring the risk of a Loss to an Insurance Company.Q2) What are the Trustee’s Duties When it Comes to Risk and Insurance? “Charity Trustees have a duty to protect their charity’s assets and resources” According to the Charity Commission (the regulator), this means that Trustees should consider Risk in all areas of their work. This involves meeting regularly to discuss the Risk to the organisation and how best to manage it.Q3) When Should You Consider Insurance? Insurance should be considered as part of an organisations overall risk strategy.

Not all risks can be transferred to an insurance company and some risks are so small that it is not economically viable to do so.Risks which pose significant harm to an organisation and which cannot be eliminated in their entirety should at least be considered for insurance.Q4) What Are You Actually Insuring? Many organisations will talk in terms of “insuring the building” or “insuring their car” etc.It is in fact the unexpected cost or loss that is the subject matter of the insurance. Such costs and losses can take many less tangible forms than rebuilding a property or having the car repaired.For example:- It is the cost of compensation for somebody hurt at your premises- It is the cost of defending a wrongful dismissal claim from an employee.- It is the cost of lost income because your show is abandoned half way through due to bad weather.Q5) What Are the Benefits of Insurance Arranging a suitable insurance policy will:- Provide protection against Losses which would otherwise damage the organisation- Provide predictability in the costs associated with Risk-Provide certainty for the management team when it comes to budgeting.Q6) What is Self-Insurance? The term self-insurance relates to those organisations that choose to bear the consequences of Risk upon themselves.Organisations that opt for self-insurance do so from either an informed or uninformed position.Informed: – Organisations will have conducted a full risk analysis and confirmed that they have sufficient cash reserves available to meet the costs of all potential future losses.- They must also satisfy themselves that self-insurance is the most effective use of the organisations resources.

Uninformed: – Organisations will have understated or ignored the risks. Alternatively they may have overestimated their ability to tolerate large or frequent losses.Q7) What is the Cost of an Insurance Policy? The cost of an insurance policy will be governed by a number of factors but specifically:- The size of potential losses- How often the losses are likely to occurPremiums will be higher for those organisations which are likely to suffer losses which are larger or more frequent.In contrast those organisations which are less likely to suffer a loss or the potential losses are smaller will enjoy lower premiums.Q8) Do We Have to Insure All or Nothing? No, organisations can choose to insure only against potential losses which cannot easily be absorbed.A good insurance broker can design a policy specifically around your organsiation which leads to significantly lower premiums.

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