Residential homes desperate for help in face of rising insurance premiums

Hundreds of residential care homes could go to the wall because
insurance companies are either refusing their business or
dramatically upping their premiums (news, page 16, 13 March).

The rises have resulted in many homes paying 200 per cent more in
public and employer liability insurance. At first it was believed
that the hikes, which came to notice last summer (news, page 6, 4
July 2002), were a reaction to stock market losses caused by the
terrorist attacks in the US in September 2001.

Many had hoped that the rise in insurance premiums would be
short-lived but instead it has continued during the past year.
Unless it subsides there will be catastrophic consequences for the
sector.

Simon Rouse, managing director of Corvedale Care, a provider of
accommodation for hard-to-place children, received “kick in the
teeth” news last week that the cost of insuring his children’s
homes will rise by £40,000 this year. Taken with the
£48,000 rise from last year, it has gone up from £40,000
to £128,000.

Rouse is just one of hundreds of providers of residential homes who
have also seen their premiums soar and their profits plummet.

Tom Starkey, vice chairperson of the National Association of
Resources for Children, which has 40 members, says some have been
forced to pay increases of up to 700 per cent.

Stephen Wall, managing director of insurance broker the Bollington
Group, says the terrorist attacks of 11 September 2001 forced many
insurance firms to take a more sophisticated look at their care
portfolios. In doing so, they realised there were more risks
attached to children’s homes than other parts of the sector. Now
most insurance firms have separated their social care sector
business into distinct parts.

He explains: “There is a long trail of abuse claims coming in from
children who were in homes in the 1970s because 2003 standards are
being applied to what went on back then. Insurers are worried that
what is acceptable today will not be in 20 years’ time and they
might face claims. There is the potential for people beginning to
claim for not just abuse but a range of things such as a poor
education.

“In the past, the risks in children’s homes were incorrectly
assessed by insurers. It is not so much that insurance is expensive
now but that it was wrongly assessed in the past – I don’t think
what is happening now is a temporary blip,” he adds.

Wall does not expect insurance firms to be flooded with
compensation claims in the future but says that companies have to
ensure they are covered for the occasional claim.

Improved controls, such as better vetting of staff, and the
creation of the Criminal Records Bureau and the National Care
Standards Commission, have done a lot to reassure insurers that
home owners are managing risk better. But, says Wall, there is
“always a bad apple for which we must be prepared”.

Whatever the reasons of insurance companies, it is clear that many
providers are struggling to pay more.

Worryingly, according to another insurance broker White Rose, there
is evidence of homes operating illegally without cover. But the
extent of this is unknown because of the reluctance of those within
the sector to talk openly about it.

Others have been left with little option but to close their homes.
Peter Jones is director of the Redridge outward-bound centre for
young people in Wales, as well as a specialist children’s home with
one child. Last October he was forced to close the home after his
insurer would not renew because his business was considered too
risky.

The child accommodated in the home was sent back to council care.
Three months and dozens of phone calls to insurance firms later,
Jones was able to reopen. But he says the experience, during which
he continued to pay six employees’ salaries, has been hugely
costly.

Like many others, Jones had been confident that the nightmare
stories circulating the social care sector about insurance problems
would not affect his business. “I thought, ‘I’ve been going for 24
years so it won’t be a problem’,” he says.

Asked if it would be less trouble not to reopen, Jones says: “After
weeks of chasing around for insurance you do wonder if it is worth
it.”

The effects of the problem will be felt throughout the entire
system. Rouse, for example, was forced to up the fees he charges
the 88 councils that place children in his homes to cover the
increased insurance costs.

Worse still, if homes continue to close, councils will be left with
clients for whom there are no residential places. And if
long-established businesses are having problems obtaining
insurance, then new ones with no proven track record may have even
less chance of getting a deal or will be deterred by the huge sums
of money needed to secure one, preventing any growth in the
sector.

To date, few homes have closed but if the increases continue at the
rate they have done, many more are sure to follow.

It is not a problem confined to children’s homes either, although
with just three insurers – Axa, Zurich and Trenwick – underwriting
the majority of that market they have struggled more than
most.

The owners of an older people’s home in Maidstone, in Kent,
recently found that when they wanted to change their business into
a home for people with mental health needs their insurer would not
back them.

Eventually, they found a new company. But Angela Graham, head of
policy and standards for children’s services at Kent Council says
there was a worry about what would happen to the people the council
was planning to place in the home.

“We are not exactly awash with vacant beds,” she says.

The Barnsley Alcohol and Drug Advice Service, which runs a needle
exchange scheme, was forced to close for six days earlier this year
because it could not obtain insurance, and a survey of 20 drug
treatment services carried out by charity Drugscope last year found
that half had either been refused by insurance companies or had
seen their premiums increase dramatically. Drugscope chief
executive Roger Howard has urged the government to look at the
problem “as an urgent matter”.

Liberal Democrat spokesperson for small business Brian Cotter MP
launched a campaign last November that calls on the government to
launch an urgent inquiry into why businesses are facing substantial
insurance increases.

An early day motion tabled by Cotter, which has received 88
signatures, also asks the government to promote a code of conduct
for the industry and says an acceptable period of notice must be
given of intent to increase premiums or withdraw -Êsome homes
have reported being given as little as a day’s notice that they
will no longer be insured.

A report by the Department for Work and Pensions into the issue is
due at the end of the month. Another report by the Office of Fair
Trading will be published later in the spring.

But while these efforts are welcome, it is difficult to see how
insurers in these uncertain times can be persuaded that care homes
are worth the risk.