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Insurance

INSURANCE

Contents:

Scope

Key Points

Background

Commercial Insurance

Loaned Assets

Fees and Charges

Employers' Liability / Roads Traffic Acts

Vehicle Insurance in the EU

Liabilities of Office-Holders and Board Members

Uninsured Losses or Claims

Insured Losses or Claims

Scope

1. This section gives guidance on insurance arrangements in constituent parts of the Scottish Administration (i.e. the core Scottish Government (SG), the Crown Office and Procurator Fiscal Service, SG Executive Agencies and non-ministerial departments) and bodies sponsored by the SG. Other bodies to which the Scottish Public Finance Manual (SPFM) is directly applicable should ensure that appropriate guidance on insurance is put in place.

Key Points

2. Constituent parts of the Scottish Administration and self-insuring SG sponsored bodies would be justified in taking out commercial insurance only in specified circumstances or if the cost of claims, including in-house and contracted-out administration costs, was calculated as likely to exceed the cost of insurance premiums.

3. Commercial insurance must be taken out by SG sponsored bodies where there is a legal requirement to do so. 

4. Proposals by a constituent part of the Scottish Administration or a self-insuring SG sponsored body to take out commercial insurance, either on a value for money basis or in circumstances other than those specified in this guidance, must secure the prior approval of the relevant SG Finance Business Partner (or equivalent).

5. Where it is decided that an uninsured asset should be repaired or replaced or an uninsured claim met, the presumption is that the costs will be met from within previously agreed budgets. It is however open to the Scottish Ministers to agree changes to such budgets.

Background

6. Insurance arrangements of all bodies to which the SPFM is applicable should be reviewed from time to time in the context of Risk Management. However, under the Scottish Ministers’ policy of self-insurance constituent parts of the Scottish Administration and self-insuring SG sponsored bodies would be justified in taking out commercial insurance only in specified circumstances or if the cost of claims, including in-house and contracted-out administration costs, was calculated as likely to exceed the cost of insurance premiums. All of the expected costs and benefits should be taken into account in establishing a value for money case for commercial insurance. Detailed guidance on conducting a cost-benefit analysis is provided in the Green Book. In order to show that commercial insurance provides value for money the cost-benefit analysis must show a positive net benefit.

7. As a general rule self-insuring SG sponsored bodies are those where, taking one year with another, more than half of gross expenditure is financed direct by the SG, in the form of either grant in aid, grant or fees / charges.  Advice on whether or not SG sponsored bodies should be classified as self-insuring may be obtained from the relevant SG Finance Business Partner (or equivalent).

Commercial Insurance

8. Commercial insurance must be taken out where there is a legal requirement to do so - but see below under “Employers' Liability / Road Traffic Acts”.  It may also be taken out by constituent parts of the Scottish Administration and self-insuring SG sponsored bodies where it can either be justified in terms of value for money or in the following specific circumstances:

  • where buildings insurance is a condition of a lease and the lessor will not accept an indemnity. Every attempt should be made to persuade the lessor to accept an indemnity or letter of comfort but where the lessor will not agree to do so commercial insurance may be taken out, provided that incurring the total cost of the accommodation in question including the cost of the insurance policy is more cost-effective than other accommodation options;
  • where private sector contractors and developers take out a joint site insurance policy because it is cheaper than each individual party insuring themselves separately and the client's own risks can be covered for little or no extra cost;
  • where the purchase of insurance is integral to a project and where the cost would make no difference to the choice of contractor. Every attempt should be made to persuade the contractor to accept an indemnity or letter of comfort and any costs should be included in the appraisal of the project;
  • corporate travel insurance for staff travelling abroad on official business where the cost of emergency cover could be justified in terms of the availability of local support should an incident occur and the duty of care that employers have towards their employees;
  • insurance in relation to income generation schemes / wider market activities outwith core responsibilities where the cost of such insurance would be met entirely out of the income generated by those schemes / activities - see below under Fees and Charges;
  • insurance in respect of boilers and lifts where the cost of the premium covers periodic expert inspection designed to reduce the risk of loss or damage; and
  • insurance in respect of loaned assets where the lender is not prepared to accept an indemnity or letter of comfort - see below under "Loaned Assets".

9. Proposals by a constituent part of the Scottish Administration or a self-insuring SG sponsored body to take out commercial insurance, either on a value for money basis or in circumstances other than those specified in the preceding paragraph, must secure the prior approval of the relevant SG Finance Business Partner (or equivalent).  Proposals by self-insuring SG sponsored bodies should be submitted via their SG sponsor units.

Loaned Assets

10. Where assets owned by the Scottish Ministers or self-insuring sponsored bodies are loaned to a third party, the general rule is that the borrower should, in the name of the lender, insure against damage or loss of the assets from the time of receipt and against claims by third parties including the employees of the borrower. An indemnity by the borrowers can take the place of insurance if the lender is satisfied that any losses could be met by the borrower from its own resources.

11. Where a constituent part of the Scottish Administration or self-insuring sponsored body receives on loan an object of value and the owner, as a condition of the loan, insists upon the continuation of current insurance, the borrowing party should make every effort to persuade the lender to accept an indemnity in place of insurance, unless commercial insurance would be more cost-effective. Where an indemnity is acceptable to a lender its terms should (with legal advice) be so drawn as to leave no doubt as to the extent and duration of the liability of the borrowing party. (Indemnities resulting from the policy of self-insurance should be regarded as arising within the normal course of business - see the guidance on Contingent Liabilities.)

Fees and Charges

12. Where commercial insurance is taken out against risks arising in connection with a service for which a fee or charge is levied, the actual premium payments to the insurance company should be included in the calculation of costs for the purpose of determining the fee or charge. In the case of self-insurance where there is no actual payment to record it will be necessary to calculate a notional insurance premium. This should be done for all relevant uninsured risks, such as damage to or loss of assets, employers' liability and claims from third parties. Notional insurance premiums should be based on an assessment of the amount needed, taking one year with another, to cover the costs of meeting any losses.

Employers' Liability / Roads Traffic Acts

13. Crown bodies are not bound by the Employers' Liability (Compulsory Insurance) Act 1969 or the relevant Road Traffic Acts. Constituent parts of the Scottish Administration, therefore, are not statutorily required to insure the risks which may arise under those Acts and a decision to insure or not to insure should be taken on value for money grounds. SG sponsored bodies are not Crown bodies and must insure commercially where there is a legal requirement to do so.  It should be noted however that SG sponsored bodies do not necessarily have to insure against employers' liability risks and certain SG sponsored bodies are excluded from the requirement in section 143 of the Road Traffic Act 1988 to be insured or secured against third-party risks.

14. The Employers' Liability (Compulsory Insurance) (Amendment) Regulations 1998 (as amended by the Scotland Act 1998 (Consequential Modifications) No 2) Order 1999) provides exemption for any body which holds a certificate issued by the Scottish Ministers. Responsibility for the issue of certificates rests with the SG sponsor unit. Certificates should, as a general rule, only be issued to bodies receiving grant in aid as it would not normally be appropriate to issue such certificates to bodies funded in other ways.

15. The scope of the certificate should be strictly confined to the risks with which the Act is concerned, and may not be extended to any other risks. It should be in the following form:

"In accordance with the provisions of paragraph 1 of Schedule 2 to the Employers' Liability (Compulsory Insurance) Regulations 1998 (as amended by the Scotland Act 1998 (Consequential Modifications) No 2) Order 1999)) the Scottish Ministers hereby certify that any claim established against [name of body] in respect of any liability of the kind mentioned in section 1(1) of the Employers' Liability (Compulsory Insurance) Act 1969 will, to any extent to which it is incapable of being satisfied by the aforementioned employer, be satisfied out of the Scottish Consolidated Fund."

16. In the case of any cross border public authorities / jointly established bodies receiving grant in aid from both the SG and UK Government Departments, sponsor units should consider, together with their Whitehall counterparts and in consultation with their Finance Business Partner (or equivalent), the most appropriate treatment (e.g. issue a certificate in respect of Scottish employees only, or arrange the issue of a joint certificate).

Vehicle Insurance in the European Union

17. Vehicles travelling in other countries of the European Union must comply with relevant Directives. These require vehicles of a member state operating in another member's territory to be covered by insurance to the extent required by the legislation in that territory, unless acceptable alternative arrangements or indemnities exist or are instituted

Liabilities of Office-holders and Board Members

18. Office-holders appointed by the Scottish Ministers and individual board members of bodies sponsored by the SG (including independent external members of board committees) who have acted honestly and in good faith should not have to meet out of their own personal resources any personal civil liability which is incurred in the execution or purported execution of their functions, save where the person has acted recklessly. Relevant claims established against an office-holder or board member will therefore be met from funds provided by the Scottish Ministers.

19. It should not therefore be necessary to issue formal indemnities to relevant office-holders and board members in connection with personal civil liabilities. However, such indemnities may be provided by the SG on a case by case basis. (Indemnities resulting from the policy of self-insurance should be regarded as arising within the normal course of business - see the guidance on Contingent Liabilities.)

20. Sponsored bodies for which self-insurance is considered inappropriate (see paragraph 7) may take out commercial insurance against the personal civil liabilities of board members and independent external members of board committees.

Uninsured losses or Claims

21. Where a loss occurs or a third party claim is received the first question to consider is whether the loss should be made good or the claim accepted. In the case of loss of or damage to assets the question of repair or replacement should always be carefully considered taking account of the need for the asset. A repair or replacement decision is, in effect, a new investment decision and should be appraised accordingly. Claims against constituent parts of the Scottish Administration (and claims against self-insuring SG sponsored bodies that fall outside any delegated authority) should be carefully considered in consultation with the Scottish Government Legal Directorate and the relevant SG Finance Business Partner (or equivalent).

22. Where it is decided that an uninsured asset should be repaired or replaced or an uninsured claim met, the presumption is that the costs will be met from within previously agreed budgets. It is however open to the Scottish Ministers to agree changes to such budgets.  Where changes to budgets are sought, comprehensive business cases should be submitted to the relevant Finance Business Partner (or equivalent).

23. Losses which are not fully covered by commercial insurance or made good by a third party are subject to the guidance on Losses and Special Payments.

Insured Losses or Claims

24. Where commercial insurance policies have been taken out the claim should be handled under the terms of the policy. Budget Act cover should be secured in consultation the relevant SG Finance Business Partner (or equivalent) to ensure that receipts from insurers in settlement of claims by constituent parts of the Scottish Administration can be recycled. The budgets of sponsored bodies should be adjusted to enable receipts from insurers in settlement of claims to be used to meet expenditure resulting from the losses or claims. However, the use of any such receipts for any other purpose will be subject to approval by the SG on a case by case basis.

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Page Published / Updated: September 2012