JULY 2017SUMMER NEWSLETTERINTRODUCTIONThe tragedy involving the residents of Grenfell Tower is very raw at the time of writing this newsletter and certainly puts things into perspective for all us. The fact that the building provided Social Housing does, of course, particularly resonate with all of us involved in the sector - be it you as providers or those of us at Gallagher Housing.

At a corporate level we are looking at ways to offer support. However at a local level please contact your Account Director if you need any support or merely require information or clarification on any related issue.

Let us hope that some positive learnings and actions result over time.

In our last Newsletter, I referred to the unpredictable environment and, once again, commentators have been confounded by an unexpected General Election result.

What was expected, however, was the well trailed increase in Insurance Premium Tax (IPT), as this had been announced some while ago. In this edition we explain the practical implications.

Also in this edition we have outlined the impact of the Justice Department’s changes to the personal injury discount rates. Effectively compensation awards for certain claims can increase dramatically – in extreme cases by millions. Over time we can surely expect this change to be reflected in increased premiums.

Once again we have provided some Risk Management information – this time on the subject of managing your Motor Fleet. This interesting article highlights a device which helps maximise efficiency whilst simultaneously reducing accident rates.

I am pleased to announce below the winner of our ‘Beat the Buzzer’ competition which took place at the NHF Finance Conference in March. As usual the donation is given to the chosen charity.

Finally can I wish you all a safe and enjoyable summer.

INSURANCE PREMIUM TAX IS INCREASING: WHAT YOU NEED TO KNOW

With effect from 1 June 2017 the standard rate of Insurance Premium Tax (IPT) increased from 10% to 12%.

It is important to note that the following rules apply:

• All new policies and renewals that started on or after the 1 June 2017 will be charged at the new rate of 12%

• Mid-term adjustments (MTA) with an additional premium that incepted or renewed prior to 1 June 2017 will be charged at the old, 10% rate

• Return premium, refunds or cancellations will be subject to the rate of tax originally charged on the premium that is being adjusted

• There is a backstop date of 1 June 2018 at which point IPT will be 12% for all new and additional premiums; unlike previous rate changes there is no transitional period.

SUMMER NEWSLETTER JULY 2017

Mid-Term Adjustments – ‘New Risk’ Any additional premium received by the insurers in respect of a ‘new risk’ for which cover began after the implementation date of 1 June 2017 will be l viable to tax at the new rate of 12%.

An MTA will qualify as a ‘new risk’ if it is processed as a new policy and thus not attached to the original policy.

The following table provides a quick reference to the new rules:

IPT Rate Application Table

This is the second increase in IPT in a relatively short space of time and it is our recommendation that you should be prepared for further increases in future.

PERSONAL INJURY DISCOUNT RATE CHANGES

The Justice Department announced changes to the personal injury discount rates within the ‘Ogden tables’ which came into effect on 20th March 2017.

The discount rate is a percentage reduction applied to lump sum compensation awards to allow for the investment income the claimant ought to achieve over the future loss period.

What’s changing?

Applicable to lump sum bodily injury compensation awards, the discount rate is used to adjust compensation awards for long-term loss.

Having been set at 2.5% in 2001, the rate changed to minus 0.75%. Whilst at first glance this may appear small, the impact on claim payments will be significant as the following examples demonstrate:

Example 1

A 30 year old earning £25,000 is seriously injured and unable to resume work with long-term care at £75,000 per year.

On the basis of the current discount rate of 2.5% the loss of earnings and care claim would amount to £2,791,000.

The move to a discount rate of minus 0.75% increases the claim to £6,325,000, an increase of 127%.

Example 2

A 20 year old is injured at work and pursues a claim against his employer. His claim includes continued loss of earnings of £25,000 per annum until retirement age at 65. On the basis of the 2.5% discount rate, this would equate to a loss of earnings claim of £639,750. However, on the basis of the new minus 0.75% discount rate, the resulting loss of earnings claim is £1,200,375 resulting in an additional payment of £560,625.

INCEPTION / RENEWAL DATE

TRANSACTION TYPE BEFORE 01/06/17 ON OR AFTER 01/06/2017 ON OR AFTER 01/06/2018

On or after 01/10/2016 and before 01/06 2017

New Business 10.0% N/A 12.0%

Renewal 10.0% N/A 12.0%

MTA - AP 10.0% 10%* 12.0%

MTA / Cancellation - RP At original rate of IPT at Inception/Renewal

On or after 01/06/2017

New Business N/A 12.0% 12.0%

Renewal N/A 12.0% 12.0%

MTA - AP N/A 12.0% 12.0%

MTA / Cancellation - RP N/A 12.0% 12.0%

SUMMER NEWSLETTER JULY 2017

NHF FINANCE CONFERENCE – WINNER OF CHARITY DONATION

We were delighted to participate in another fantastic NHF Finance Conference in March and, with what has now become tradition, we ran our conference competition; the victor winning £250 for a charity of their choice.

This year’s battle was ‘Beat the Buzzer’ and we are pleased to announce our Conference Champion was Angela Treagust, Head of Finance for Havebury Housing Partnership.

Angela chose to split her donation between Gatehouse, an independent charity that works with the vulnerable throughout East Anglia and Focus 12 a Drug and Alcohol Rehabilitation Centre based in Suffolk.

More information on both charities mentioned can be found at the following websites:

www.gatehouse.org.uk www.focus12.co.uk

Who will be affected?The change relates to any claim settlements post 20th March 2017 and to take account of this insurers are making significant increases to their claims reserves.

The Association of British Insurers estimates the total cost to be as much as £7bn. Insurers are announcing substantial increases to their claims reserves directly resulting from this change.

The Treasury has announced that the impact to the NHS alone is likely to be an increase of £1bn in medical negligence claims.

This will impact policyholders with an increase in claims reserves under Motor and Liability policies. This will

inevitably lead to increased premiums, however it’s too early say what the scale of increase will be across the industry.

What next?This increasing pressure on claims costs further highlights the need to engage in active risk management in reducing claims frequency and severity – an active profile will provide buyers with an edge in the market.

Arthur J. Gallagher will continue to monitor the situation and will keep you informed of developments. Your Account Manager is available to identify how best to mitigate this issue and to ensure the best possible solution is achieved.

SUMMER NEWSLETTER JULY 2017

WHAT ARE YOUR BIGGEST MOTOR FLEET WORRIES?

Aside from the cost of the fleet itself, they are likely to include safety, fuel cost, insurance cost, insurance claims, accidents, maintenance & servicing time, taxes and time off road. It’s a rare fleet manager that doesn’t share those concerns.

Whilst insurance cost and claims are the two areas we have historically focussed on at Arthur J. Gallagher, we are increasingly taking a wider approach in our risk management programmes.

We have recently started working with Devon Company Ashwoods Automotive who think they can address a whole range of factors with their little black box, called Lightfoot.

This isn’t a traditional telematics product, it’s about “equipping, empowering and motivating drivers to improve and manage their own performance”, which is certainly a good soundbite, but what does it actually do?

Originally designed to optimise fuel economy for hybrid vans, the box plugs directly into a vehicle’s engine management system and alerts the driver when they are driving inefficiently, leave the engine idling for too long and so on, hoping to increase fuel efficiency. It seems they claim that, by monitoring driving performance and guiding drivers towards the most efficient driving style, they didn’t just save fuel, they had a much bigger impact. Results suggest that inefficient driving increases not just cost, but engine wear, emissions levels, driver stress and frequency of accidents as well.

Statistics* suggest that drivers using Lightfoot typically see:

• Fuel costs down by up to 20%

• Accidents down by up to 60%

• Wear and tear costs down by 40-50%

• Harmful emissions down by 15-20%

Whilst these are likely the top end estimates, they are certainly not numbers to be sneezed at. A Fleet Manager or DLO Director could see significant savings based on even half those numbers.

With the addition of trackers, cameras and a data portal we think systems like this are the future of fleet management. Several Arthur J. Gallagher clients are already using it, and advise they are making savings.

This is not the right tool for every fleet, but it is perhaps one that every fleet manager should look in to.

*Statistics taken from

https://www.allianzebroker.co.uk/news-and-insight/news/allianz-partnership-with-lightfoot.html

IMPORTANT INFORMATION:This newsletter does not purport to be comprehensive or to give legal advice. While every effort has been made to ensure accuracy, Arthur J. Gallagher cannot be held liable for any errors, omissions or inaccuracies contained within the document. Readers should not act upon (or refrain from acting upon) information in this document without first taking further specialist or professional advice.

Arthur J. Gallagher Insurance Brokers Ltd is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 7th Floor, 55, Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909. FP521-2017 exp. 26/6/18

www.ajginternational.com

For more information contact

T: 0800 612 2281 E: gallagherhousing.development@ajg.com

www.ajghousing.co.uk

WOULD YOU LIKE TO TALK?

IMPORTANT INFORMATION:This newsletter does not purport to be comprehensive or to give legal advice. While every effort has been made to ensure accuracy, Arthur J. Gallagher cannot be held liable for any errors, omissions or inaccuracies contained within the document. Readers should not act upon (or refrain from acting upon) information in this document without first taking further specialist or professional advice.