The Welsh government has resurrected proposals for mergers and reorganisations across Wales’ local authorities. Aon’s Public Sector expert, Bill Sulman, assesses the and looks at the risks and opportunities that can result when a local authority merger takes place.
A radical restructuring exercise could be on the cards for local authorities in Wales following a recent announcement by the Welsh government. The proposals, which were first put forward in the Williams Commission, could see the 22 councils merged to as few as 10.
Merger partners
A green paper proposes 10 possible new council areas, bringing them into alignment with health board boundaries as far as practical. This would result in the mergers of:
- Isle of Anglesey and Gwynedd
- Conwy and Denbighshire
- Flintshire and Wrexham
- Ceredigion, Pembrokeshire and Carmarthenshire
- Swansea and Neath Port Talbot
- Bridgend, Rhondda Cynon Taff and Merthyr Tydfil
- Vale of Glamorgan and Cardiff
- Newport and Caerphilly
- Torfaen, Blaenau Gwent and Monmouthshire
Powys would remain unchanged under the proposal
The Welsh Government proposes three options – allowing authorities to merge voluntarily; a phased approach that would allow early adopters to merge in 2022 with others following by 2026; and a single merger programme taking place in 2022.
Whichever option is agreed, if the proposals do go ahead it will bring both risks and opportunities. These need to be considered carefully from a risk transfer perspective.
Risk profile
Local authorities will need to assess both strategic and operational risks that will arise from a merger.
On the strategic side this could include:
- Are any services currently being shared or part of joint working? Are they with future partners? If not, will they continue and what are the resourcing implications?
- Where services are outsourced, will they be brought inhouse? And will inhouse services be outsourced?
- Will current departments or business units be retained and expanded? If not, is there a danger that risks could be forgotten or not treated seriously enough?
- Is there a risk of loss of corporate knowledge if people leave/retire/are made redundant?
- Will there be any changes in policy and procedure/ corporate strategy and will this bring any additional risk?
- Is corporate risk appetite likely to change? How will this affect risk retention, and will this have budget implications?
- Do the merging authorities have dedicated insurance staff? Are they remaining or could there be a skills or experience gap?
There are many points to consider on the operational side too. These include:
- Highways – do the merging authorities have the same protocols and inspection/repair timetables?
- Social care – which approach should be adopted for intervention in child protection matters and does this affect the risk?
- Schools and education – is there a need for review of the approach to managing and monitoring school risks to ensure best practice is maintained?
Risk transfer
Bringing together two or more local authorities will invariably have insurance implications too. With potentially different risks profiles, the new authority will need to consider how this affects the merged insurance programme and review details such as limits of indemnity, sums insured and deductibles.
Consideration should also be given to historic liabilities and insurance funding. For example, how will previous long tail liabilities be treated if there is a self-funding arrangement? Will the new authority take on responsibility for running off the claims and funding them? Where the culture and attitude to defending claims changes, the new authority will also need to assess whether this will affect funds allocated to previous years. Similarly, where there is more than one insurance fund, a full fund audit/ review should be carried out.
Claims handling
Claims handling may also be affected, with the new authority potentially requiring an amendment to agreements with previous liability and motor insurers. The way services are delivered will also affect insurance arrangements. Where previously outsourced services are brought in-house, the new authority should obtain claims/loss history from the previous provider to enable it to accurately present the risk to an insurer. Conversely, where a service is to be outsourced, it may be possible to extract the claims relating to this service from the new risk. There may also be a requirement for run-off cover for the antecedent authority for claims made policies such as officials’ indemnity, professional indemnity, and cyber/data cover. It’s also important to explore whether any contracts entered by the previous authority will require continuation of cover.
LTAs
Long term agreements (LTA) will also be affected. As well as considering practical matters such as whether renewal dates are aligned, it’s also important to note that, as the risk profile changes dramatically following a merger, any LTA will not apply going forward.
This presents an opportunity for a full tender exercise, but it is prudent to allow as much time as possible for this. There is long term value in having an early and honest discussion with current insurers to assist with a seamless and friendly break from existing LTAs.
The proposed restructuring of local government in Wales presents many challenges from an insurance perspective. At Aon, we have considerable experience in this area. To discuss this, please contact Bill Sulman or Andrew Millard.