Bluefin Report Draft

Looking forward

Strategic Insurance Audit for Lincolnshire Co-operative Limited Strictly Private and Confidential January 2013

Insurance Solutions

Lincolnshire Co-operative Society

A powerful, professional and personal service Our trading principles We are independent insurance specialists with access to a range of products from leading global insurers and with our tenacious yet flexible approach strive not to be beaten on value for money.

As insurance experts, we monitor your risk landscape and conduct regular reviews to ensure the insurance programmes we arrange are accurate and appropriate.

We challenge convention by delivering imaginative insurance and risk management solutions designed to meet the sometimes complex requirements of corporate organisations.

Working as trusted partner to our corporate clients, our professional team strive to develop long-lasting relationships built on knowledge, clarity and openness.

Developing and nurturing high quality insurance talent is always a top priority and we have worked hard to create a strong and dependable team with the intention of exceeding expectations.

From our first meeting through to dealing with claims, our clients are at the heart of what we do and our aim is to deliver a truly first class service at every stage of the relationship.

Insurance Solutions

Lincolnshire Co-operative Society

Contents Introduction

5

Executive summary

6

Understanding Lincolnshire Co-operative

8

Programme design and broking philosophy

11

Programme review

11

Claims management

23

Risk management

26

About Bluefin

28

Bluefin service

29

Remuneration

35

The next step

36

Bluefin Insurance Services Ltd Fountain House 130 Fenchurch Street London EC3M 5DJ t: 020 7338 0111 bluefingroup.co.uk

Confidentiality and copyright Our work is undertaken without obligation. We do however have a right to protect our intellectual input and would ask that you note the following Confidentiality Clause: This statement sets out the terms upon which we have agreed to provide an insurance broking service. The report we provide is an original work of Bluefin and the information contained therein is confidential.

This report may not be disclosed to any Third Party, or reproduced in whole or part for their benefit.

Insurance Solutions

Lincolnshire Co-operative Society

Insurance Solutions

Lincolnshire Co-operative Society

Introduction We are delighted to have an opportunity to undertake this confidential audit and review of the existing insurance and risk management arrangements for Lincolnshire Co-operative Limited (the Society).

We have developed particular skills and services for our retail and property sector clients, including; • Bespoke risk audit reports to facilitate easy identification of common issues across a range of locations, or locations with particular weaknesses which deliver greater control of risk management

We would like to thank Jane Powell, Debbie Jolliff, Sharon Petley, Liz Welbourn and Beverley Bristow for their time at our recent meeting and for providing the information we required.

• A realistic expectation for tenants to comply with both the Society’s and insurer’s risk management requirements

The timing of this audit is ideal; it will allow for a proper debate of ideas to formulate the most appropriate strategy for renewal of your insurance programme on 1 July 2013.

• Bespoke software to assist property owners to deal with their premium allocation and tenant documentation issues; to improve premium collection and assist cash flow

Bluefin is a major UK independent insurance broker and specialist in the retail and property sectors. We understand the importance of comprehensive protection and value for money, operational efficiency, and risk versus opportunity. We also understand the importance of delivering an unparalleled level of service to our clients.

• A powerful and intuitive claims recording and analysis system to generate excellent management information • Training for retail managers in liability claims defensibility

Our approach with insurers is one of challenge.

Bluefin’s objective is not to be the largest broker – but the best. It is not the size that delivers but the understanding of our client’s business and our attention to detail.

• An in-house claims team based in London From our discussions, we have interpreted your requirements to be: • An insurance programme with the widest scope of cover which reflects all of your business activities ,at the most competitive premium, underwritten by an ‘A’ rated insurer ensuring financial stability

It is important that Lincolnshire Co-operative has the confidence in their insurance advisers to deliver the optimum result in terms of service, scope of cover and cost to the Society.

• A reduction in your total cost of risk being your insurance premiums, risk retention costs, losses incurred, risk management expenses and broker remuneration

We appreciate the longevity and the value of your relationship with CIS General Insurance Limited (CIS) and how this has benefitted the business over the years.

What we can say, with certainty, is that through our work with Midlands Co-operative and Midcounties Cooperative, we have established a framework that will allow Lincolnshire Co-operative to derive the maximum benefit either from a continuation of your relationship with CIS , from a change to another insurer or a combination of both.

• An integrated risk management system to support claims management, enable detailed recording of insurance incidents, trends and claims • A responsive, motivated and proactive service team with an excellent understanding of your business, its culture and objectives, on hand to assist with day to day queries and most importantly to drive forward the strategy.

We recognise that the Co-operative Societies have a unique culture and many distinctive features but we are also aware that each Co-operative has its own specific business risks and insurance needs.

We look forward to discussing the findings of our report with you.

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Insurance Solutions

Lincolnshire Co-operative Society

Executive summary From the documentation provided we are concerned that the current insurance programme has not kept pace with developments in your business. In particular:

• property damage/business interruption excluding terrorism (see comments below) • employers’ liability

• the liability policy does not include a number of vital extensions in respect of your pharmacy and motor trade businesses

• public and products liability • motor fleet (based on current vehicle numbers)

• the business interruption cover is restricted to specified premises only which exposes the Society to potential significant balance sheet loss particularly in respect of your retail sites. This also impacts on the terrorism cover. We understand that you have been in dialogue with your insurance advisers on the best way to protect the Society. We have extensive experience and best practice on this subject that we would be happy to discuss this with you.

We have based our premiums on the correct sum insured in respect of the rental income for the commercial property portfolio. Whilst the indemnity period is 36 months the sum insured currently only reflects the twelve months income of £ 26,971,639.

This also has significant implications for the terrorism premium which we believe has been calculated incorrectly on the lower sum insured.

Assuming that all of your locations are in the Pool Re terrorism zones of C and D and using the correct sum insured of £ 80,914,917 we estimate that the terrorism premium should be circa £40,000. However insurers approach to terrorism can differ and we would consider a first loss basis as an alternative which in our experience can deliver significant premium savings.

Whilst we have used your web site to supplement our understanding of your business, we appreciate that the activities as described may, in reality, vary in practice.

It is vital that insurers have an absolute understanding of all activities undertaken by the Society particularly in relation to the provision of medical services including consultations within the pharmacy business. These activities have the potential to expose the business to professional liability claims and we have expanded on this later in our report.

The achievement of the core programme premium will depend on full information of your key risk exposures and a full analysis of your claims data. We have assumed an increased risk retention across all property and business interruption claims of £1,000.

Bluefin are recognised as tough negotiators on price as well as protection. Risk placement is a specialist skill and a successful negotiating team brings our clients enormous added value.

In key areas, the scope of cover is inadequate with the potential to expose the Society to significant loss.

We have identified areas that should be addressed immediately. These include:

In our opinion the current programme does not offer the Society value for money. The Society is currently paying £ 669,500 net of IPT for the core programme excluding terrorism which is in our opinion too high.

• Ensure that the business description and title of the insured on all policies is correct and consistent with the current business activities

We anticipate that the insurance market will harden sooner rather than later and it is therefore more difficult than in the recent past to be too aggressive in terms of premium savings given that renewal is still six months away.

• Undertake a review of the status of liability cover for pharmacies to ensure that there is adequate protection both for the business and individual professionals, without gaps or duplications. As a minimum contingent liability cover is required for the Society for liabilities arising out of the actions of the pharmacists and specially trained advisers.

Nonetheless, for the core package of protection we are targeting a premium in the range of £550,000£575,000 excluding commission and insurance premium tax.

A full review of the contracts entered into with the Primary Care Trusts (PCT) should be undertaken to establish the contractual obligations for legal liability.

This includes:

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Insurance Solutions

Lincolnshire Co-operative Society

These conditions are unacceptable to us. We have very strict internal rules to ensure that any such restrictions are only accepted in the most extreme of circumstances, and the implications of noncompliance is absolutely understood by our clients.

• Ensure that insurers are aware of the extent of the consultations undertaken by the pharmacists or specially trained advisers • Undertake a full business interruption review to include suppliers and IT exposures

We have had discussions with CIS in the past on this subject. Whilst we do not doubt that they would exercise discretion and apply these conditions sympathetically in the event of a relatively small loss, neither they nor their reinsurers would be so lenient in the event of a major loss particularly as they are heavily reliant on reinsurance protection for losses above a certain level.

• Review the extent of the terrorism cover to ensure it meets the business requirements particularly in respect of lease obligations for the property portfolio • Extend the tour operators liability policy to include “sale of insurance” • Clarify the services offered by Lincolnshire Cooperative Transport to determine whether defective workmanship insurance cover is required

• The £10m limit of indemnity for public liability looks dangerously low compared with the potential value of a claim involving serious injury to customers in the event of, for example, a negligently caused fire, and/or damage to neighbouring property including any resultant business interruption loss. The highest ever UK personal injury compensation settlement is £11.15m. This enormous compensation payout was based on the extreme suffering and impact on the claimant’s life, as well as the costs of long term care, loss of earnings and a host of other factors. The estimated cost for increased liability protection is modest. Excess layer protection should be extended to include excess of loss liability over the motor fleet policy and the tour operator’s liability policies.

• Review the position in respect of goods in transit cover which is currently uninsured • Review the Society’s exposure to deterioration of stock which is currently uninsured In addition there are a number of areas where we believe the insurance programme should be improved both in terms of limits of indemnity and scope of cover: • The policy contains onerous conditions in respect of: • Stock Storage in basements with an additional increased height restriction for 5 Proctors Road.

• Unoccupied premises • Automatic sprinkler systems • Fire extinguishing appliances • Intruder alarm systems • Unattended vehicle (Business Risk section) • Construction, Heating and Occupation of the Buildings • Removal of cash from automated teller machines (ATM) outside of business hours These conditions impose severe operational requirements particularly where there are multiple sites and adherence is almost impossible to ensure.

In the case of the ATM conditions these have the potential to expose your employees to increased personal risk and the Society to unnecessary financial risk.

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Insurance Solutions

Lincolnshire Co-operative Society

Understanding Lincolnshire Co-operative Whilst we have considerable experience with independent Co-operative societies and understand the business model and more importantly the associated values and principles, we are also aware that each has a generic and a specific risk profile.

The main areas driving the business are the food sales, travel and funeral services. Conversely one of the areas of challenge is the fuel forecourt business. In line with the national trend and tough competitor pricing, forecourts saw a decrease in volume fuel sales.

Lincolnshire Co-operative is a complex business with multiple interests and business areas. It also has a strong reputation as a forward-thinking, socially and environmentally responsible organisation.

The pharmacy wholesale business, the home stores and post offices have, however, all seen a decline in business as public spending tightens.

Retailers are increasingly offering a wider range of products and services and over recent years the Society has recognised the importance of diversifying and offering more community based services. Ursula Lidbetter has recently said that “Providing community services is at the heart of what we do at Lincolnshire Coop …”.

There are hidden risks in the business for example in your supply chain, warehousing, contractual, legal and regulatory obligations, environmental and cyber (online) risks.

Our key objectives are to ensure balance sheet and brand protection for the Society.

This includes the expansion of the services delivered by the pharmacies. We have reviewed the liability policy wording and are concerned that it does not appear to include specific extensions in respect of contingent liability arising from the actions of the pharmacists, locum pharmacists and specially trained advisors.

As acknowledged in your Annual Report and Accounts, these are challenging times with continuing economic uncertainty. Consumers continue to be cautious with their spending and the business costs have risen. The expectation is that these difficult trading conditions will continue well into 2013.

The Society continues to invest in the business to deliver long-term success and has also recognised the need to divest itself of non core activities, for example Holland Brothers Jaguar dealership.

There are also opportunities in the future for development of the former dairy site in Boulham and the £100m major Lindongate project to regenerate and reinvigorate the south-east corner of Lincoln city centre.

It is vital that insurers are kept informed of all changes to your business profile and that the claims experience is cleansed of the businesses which have been sold. This will ensure that underwriters are basing their premiums on the current risk profile and not historic risks.

The principal business activities of Lincolnshire Cooperative are food stores, pharmacies, home stores, filling stations, post offices, travel agents, funeral services, pharmaceutical wholesale and the management of a commercial and residential investment portfolio.

We understand that the pharmacies provide pharmaceutical services under contract with their local PCT. At this time of rapid evolution in NHS primary care and with the community services provided by pharmacists expanding, the risks are inevitably increasing.

The Society also has a florist and bakery business.

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Insurance Solutions

Lincolnshire Co-operative Society

There are two aspects of liability to consider. The first is the liability which you may have to the PCT under various contracts. Exception 6 under the legal liabilities section of your combined policy specifically excludes:

The policy schedule provided for the review relates to 2011/12.We cannot therefore confirm that the liability policy has been extended to include the activities of Lincolnshire Co-operative Transport at renewal 2012.

‘advice, instruction, consultancy performed or provided separately for a fee or under a separate contract.’

In today's litigious society, all tour operators and travel agents are aware of the potential claims for compensation they are exposed to, both under Common Law and more importantly by the UK Package Travel Regulations. These impose an almost strict liability for proper performance of the contract on the tour organiser for their activities and those of their suppliers.

We would strongly recommend a review of all your PCT contracts to understand the liability of the Society and ensure that the policy will respond in the event of a claim.

We assume that the income earned from the provision of services under contract to the PCT is included within the general turnover figure. Insurers may ask you to identify the income received under these contracts separately.

This responsibility is not just restricted to tour operators. The Package Travel and Holiday Regulations 1992 define a Tour Operator (or Organiser) as one who combines two or more elements of travel. Few agents now only advise clients on tours from brochures.

Agents now must offer their own packages from specialist consolidators.

The second aspect is liability to the public for injury or damage.

Individual pharmacists may have their own professional liability insurance arranged through a professional body for example the National Society of Pharmacists (NPA) but this will usually only indemnify the individual and not the entity of Lincolnshire Co-operative.

When a travel agent makes this transition there is a change in the duties owed to the client and the role changes from “agent” to “principal”. The Agent is now classified as a “Tour Organiser” and will require protection from all liabilities arising, not only from his own errors and omissions, but the acts of all of the suppliers to the package.

We have arranged contingent liability cover for our clients on the basis that their pharmacists are members of the NPA and have arranged insurance subject to a £10m limit of indemnity.

Liability for the Society’s travel business is insured under a separate tour operator’s liability policy with Vantage Insurance Services Ltd.

We would also recommend an annual audit of the pharmacists individual’s professional liability insurance arrangements, including locums when used.

Travel agents are excluded from FSA regulation when their activities are limited to general insurance policies for travel booked with the travel agent subject to a number of conditions.

There is a separate specialist liability policy (renewal date 5 January 2014) to provide indemnity in respect of the counselling services you provided by The Lincolnshire Centre for Grief and Loss.

The tour operator’s liability policies we place on behalf of our client’s contain a ‘Sale of Insurance’ extension to provide appropriate protection. The Vantage policy does not include this extension.

We understand that Lincolnshire Co-operative Transport offer car MOT and servicing to members of the Society and staff. Cover for a trade plate is included under the motor policy.

Co-operative retailers have expanded their volunteer services to include working with local schools and library’s.

The summary provided for the 2012 premium confirms that the motor trade policy was not renewed in 2012.

We would therefore expect the liability policy to have been extended to include defective workmanship cover.

Lincolnshire Co-operative employees are often asked to go into schools to take part or lead sessions on a range of topics, including Fair-trade, local sourcing and business skills. Employees also run a Safer Measures programme, which teaches young people about alcohol awareness.

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Insurance Solutions

Lincolnshire Co-operative Society

Insurers should be made aware of these activities to ensure that cover for potential abuse claims is clear. A number of insurer’s wordings remain silent in this respect.

It is vital that you have a robust risk management strategy in place in respect of your website and cyber exposures.

More often than not cyber risks fall outside the scope of traditional insurance policies and we would be happy to provide you with examples of differences in policy wordings.

The products and services of Lincoln Shop Equipment Limited (LSE) should be reviewed. Depending on the outcome, the public and products liability policy may need to be extended to include efficacy cover.

We are never complacent, particularly as our role involves the protection of our client’s balance sheet, brand and ultimately their business. We review changes to our clients business continuously to ensure that the insurance arrangements reflect all potential exposures.

Efficacy insurance is commonly required by businesses involved in the manufacture, service, supply or installation of performance critical products such as fire alarms, emergency lighting, intruder alarms, fire extinguishers, etc.

The web site www.lsepos.co.uk confirms that LSE sell and install a range of CCTV equipment including cameras for day and night recording.

LSE engineers also provide training for customers. We would again refer to the liability exclusion relating to: ‘advice, instruction, consultancy performed or provided separately for a fee or under a separate contract’.

Most standard public and products liability policies will exclude efficacy cover, so it is essential that this is reviewed.

Businesses that hold customer data including credit card information or other sensitive information including medical information within their networks have a legal obligation to protect and safeguard this data.

This applies to all of your activities. A number of Cooperative businesses now offer online prescription services and hold sensitive data relating to medication.

A privacy or security breach could result in the compromise of data and result in significant and costly obligations imposed under data protection legislations, regulatory issues, and fines and penalties imposed by regulatory bodies.

Recent years have seen a number of businesses suffer costly data breaches. In 2010 the Information Commissioner, acquired the power to fine offending organisations up to £500,000 for breaches of the Act. Management of data protection risks involves brand and reputation risks, financial costs and operational challenges. Ultimately a breach of sensitive data, particularly in respect of your pharmacy business, could cause stakeholders or members to lose confidence in Lincolnshire Co-operative.

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Insurance Solutions

Lincolnshire Co-operative Society

Programme design and broking philosophy The key purpose of insurance is to ensure that the business has adequate funds to survive a major loss and that the balance sheet and therefore the business are adequately protected.

Underwriters may be prone to decline business, which they perceive to be complex or high risk. We know from experience that there are alternative insurance markets available to the Society. This is the perfect opportunity to investigate this and focus on the many positives aspects of the business.

Our objective is to design the most cost effective and flexible insurance programme in terms of scope of policy wording and price for our clients. This is vital to provide clients with the freedom to conduct their business without the need for continual referral to insurers for approval.

We follow a stepped process from risk analysis to placement which allows us to create carefully designed solutions.

To achieve the lowest total cost of risk, we must ensure that the correct balance between insurance and selfinsurance is achieved. This entails:

Assess your risk exposure

• Determining the client’s risk retention appetite and ‘comfort zone’. Our understanding of the Society is that you take a generally risk averse approach.

However, with the right structure and broker support, greater self-insurance need not mean greater risk to the balance sheet.

Design risk transfer programme

Efficient execution and placement

• Assessing how greater self-insured losses would be managed and funded

Ongoing assessment of your needs

• Transferring claims data to an integrated claims management system to view the effect of different deductible levels on historic data, to help calculate the optimum level. Presenting a properly quantified case to insurers allows deductible levels to be driven by the client and Bluefin and not insurers.

Loss control surveys are a core component of risk engineering .To be able to drive and control negotiations with insurers it is vital that you have ownership of independent risk control information.

• Benchmark client’s cost of risk against industry sector data to establish their performance relative to their industry peers

CIS, in partnership with Aviva, undertake an annual planned programme of surveys. The reality is that these are not always carried out and when they are the risk requirements can be overly prescriptive.

We are concerned that there has not been sufficient investment in claims and data management systems to support your risk management needs. This has had a significant impact on your claims costs your liability premiums.

We provide our clients with a programme of specialist property and business interruption and liability surveys, which remain the property of our client and not insurers. In a hard insurance market these reports provide invaluable intellectual property to control premium costs.

Understanding the risk profile and the risk management in place for the Society will ensure that the risk is correctly positioned in the insurance market.

We know from experience that insurers value the quality and integrity of our risk presentations which are validated by our clients.

Programme review

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Insurance Solutions

Lincolnshire Co-operative Society

Business description

Title of the Insured

We have reviewed the policy documents and have noted that the business description is not consistent across the insurance programme.

Not all policies have been issued with the correct title of insured being; Lincolnshire Co-operative Limited and all its subsidiaries

The CIS combined policy contains a specialist endorsement which states that the business description is as follows:

The tour operator’s liability policy and the motor policy are in the name of Lincolnshire Co-Operative Limited only.

Food store proprietors, pharmacy operators , travel agents, property owners and developers, garage and car park proprietors and any ancillary allied or incidental activities

The directors and officer’s liability policy and crime policy will automatically include any subsidiary company.

However under the property damage all risks section of the same policy a more comprehensive description is given:

We would like to understand the legal status of the relationship between Ellcee Limited, a community consultancy consortium and the Society. This organisation is currently included as a subsidiary company under the director’s and officer’s liability policy.

Pharmacies, Food stores, Post Offices, Home Stores, Coffee Shops, Travel Agents, Food Distribution Centres, Bakery, Filling Stations, Funeral Homes, Stonemasons and Florists, Shop Equipment Supplier, Transport Department, Works Department and Empty Premises The liability section has a much more restricted description: Food/Non-food Retailers, Pharmacists, Funeral Services, Property Owners The motor policy notes the “Full Business Description” as: Food Shops, Travel Agencies, Pharmacies, Opticians, Funeral Services and Car Dealerships The Society must review the various descriptions and agree an overall encompassing description to include all activities. This should also incorporate: Providers of social, cultural, recreational and educational activities and services for the Society’s members. Property owners, lessees, lessors and ancillary activities

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Insurance Solutions

Lincolnshire Co-operative Society

Statutory compliance

Engineering inspection

For UK businesses consideration of this area is restricted to:

We have not been provided with details of your engineering inspection contract and cannot confirm that the scope of equipment inspected is complete, or that sufficiently rigorous procedures exist to ensure that all items requiring inspection are included in the contract, but recommend that this is done.

Employers’ liability As required by the Employers’ Liability (Compulsory Insurance) Act 1969 and subsequent amendments. The minimum statutory requirement is for £5m indemnity in respect of liability to employees of the business or its subsidiary companies. You currently purchase £25m which is in line with our usual recommendation to clients.

Beyond the statutory areas, all insurance is discretionary, and insurance purchase decisions should be considered in a commercial context.

Terrorism is limited to £5m any one occurrence including costs and expenses.

Cover for asbestos liability and Transfer of Undertakings (Protection of Employment) Regulations 2006 should be clarified with insurers.

The policy excludes liability: • in connection with work or visits to offshore installations or associated structures • for which compulsory motor insurance or security is required under any road traffic legislation within the European Community.

Third party motor liability As required by the Road Traffic Act being unlimited indemnity to third parties for bodily injury and £250,000 for property damage resulting from operation of motor vehicles.

Your motor policy has the following limits: • £20m third party property damage in respect of private cars or motorcycles • £1m in respect of any vehicle which is carrying goods carried in accordance with the Carriage of Dangerous Goods and Use of Transportable Pressure Equipment Regulations 2007 • £5m in respect of all other vehicles We would recommend that your excess liability policy be extended to include excess third party property damage cover in respect of commercial vehicles.

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Insurance Solutions

Lincolnshire Co-operative Society

This is an area where Bluefin could add significant value, in preparing the Society to meet future challenges including the potential for a hardening of the insurance market.

Financial protection Comments on premium cost Insurance is a significant cost with premiums paid at last renewal of over £736,000 (excluding IPT, VAT and broker’s fee). This includes the directors and officers liability and crime policies which are renewed on a different date to the main programme.

We would view this as a 12-18 month project working in partnership with you. We identify later in this report where we could assist in improving the integrity of the claims management and analysis of data and where we could assist with improvements in risk management.

The majority of the cost (£699,592) falls into three areas, as shown below. We have therefore concentrated on these areas in our consideration of cost.

We know that we can deliver positive results which have been evidenced by our work with our Co-operative Society clients.

We anticipate premium savings in the order of £75,000 to £100,000 and we are willing to guarantee premium savings of £75,000 for renewal 2013, if appointed by you.

Property Property Liability Liability

We would need to carry out a more detailed cost benefit analysis of the liability claims to support these premium savings.

Motor Motor Others Others

Whilst we appreciate the benefits of longevity of insurer relationships, our role is to challenge the insurance market to deliver the optimum in terms of scope of cover and price.

In concept your business should be attractive to insurers. There is tremendous appetite amongst insurers for large retail risks. One area which would need to be clarified is whether there is a combustible composite panel risk in the warehouses. This would be addressed with a survey of the sites.

The premium insurers require is typically related to a series of factors, of which the three most important are: • claims experience • attitude to risk management as evidenced through policies and procedures • a willingness to share in the cost of losses through deductibles commensurate with the scale of the business The Society meets certain of these criteria but is less well placed when we consider quality claims management data and deductible levels. Greater self insurance does not necessarily mean greater exposure to your balance sheet.

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Insurance Solutions

Lincolnshire Co-operative Society

• In respect of theft the policy includes a seasonal increase in respect of stock and materials in trade of 25% or £500,000 whichever is the lower, during the months of November, December and January.

Attention to detail There are a number of ways in which the current insurance programme fails to meet the fundamental requirements of providing balance sheet protection for the Society.

This limit should be reviewed for adequacy.

• In respect of subsidence cover the policy has been specifically endorsed to exclude subsidence damage to owner occupied premises caused prior to 1 July 2012. There are also a number of properties noted on the policy where subsidence cover is excluded completely.

Combined property and business interruption • The policy has been underwritten on a Day One Reinstatement Basis of settlement in respect of building and contents. This means that the declared value must represent the cost of reinstatement at inception of the policy period and Average would be applied at that date. In the event that sums insured are found to be less than the value of the property insured at the time of a loss the claim settlement will be reduced in proportion to the degree of inadequacy applying.

We would want to understand the technical reasons behind your insurer’s decision.

• The policy restricts cover to fire, lightning, explosion and aircraft only in respect of a number of premises and has an increased excess of £1,000. For three specified premises the cover is limited to debris removal only and for the remainder the basis of cover is indemnity.

The stock sum insured is index linked.

The policy wording confirms that the sums insured for buildings and general contents automatically include an element in respect of professional fees and debris removal.

We assume that these are unoccupied premises or premises which are awaiting conversion to retail units.

We would recommend insuring professional fees and debris removal on a first loss basis with the sum insured based on the highest value location. In our experience this delivers premium savings.

For clients in a similar position we have agreed full cover with insurers subject to our unoccupied premises conditions which are commensurate with our client’s risk management practices. This should be reviewed with insurers.

• The policy is subject to a Premium Rebate clause in respect of the property, business interruption, theft, money, computer and business risks sections. The return premium is subject to the following loss ratios and is only allowed subject to the Society offering insurers renewal of the policy for a further twelve months: Less than 15%

7.5%

Less than 25%

5.0%

Cover in respect of Fleet Road Industrial Estate is subject to a £1,000 excess in respect of fire losses.

The reason for this is unclear and should be clarified with insurers.

• Cover in respect of computers is restricted to specified premises with an overall sum insured of £ 1,114,250.

We would recommend that the sum insured either float over all locations insured under the policy or alternatively be incorporated into the machinery and plant values to avoid the potential for underinsurance.

A cost benefit analysis must be undertaken and any potential rebate due factored into a decision to change insurer.

• The policy makes specific reference to theft cover on a first loss basis for the warehouses at Doddington Road, Proctors Road, Whisby Road and HDC Moorland Way.

• Cover in respect of workmen’s tools is limited to fire and theft involving forcible and violent entry to or exit from your locked premises or vehicles. The overall sum insured is £100,000 with a limit any one employee of £4,000.

We would like to clarify the basis of theft cover for the remainder of the business.

Was this cover intended to provide cover in respect of mechanics personal tools? If so is the cover still required?

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Insurance Solutions

Lincolnshire Co-operative Society

• As a property investor it is vital that your investments are adequately protected.

• In respect of Security Company Contingency cover it is a condition of the policy that you have provided insurers with a copy of the agreement in place between you and the security company and that you obtain insurer’s agreement before any changes are made to this.

It is important to ensure that the procedures and protocols you have in place for lease reviews to identify insurance requirements are being adhered to.

• Cover in respect of cigarettes cigars, tobacco wines spirits and other alcoholic drink is limited to £1,000 in total.

• The Society should make certain that the policy money limits reflect the business requirements particularly in respect of the post office activities and foreign currency exchange services (and banking services if these are provided).

• The Society is undertaking a number of refurbishment projects.

The current limit for negotiable instruments, for example, crossed cheques, postal orders and the like is limited to £250,000. We would expect this limit to be at least £1m in view of the post office activities. This should be achieved without cost to the Society.

Exception 10(e) of the policy excludes property in the course of construction including materials for use in the construction. Further subsidence cover is excluded in respect of demolition or construction sites unless insurers have agreed in writing.

It may be that the Society has a separate contract works policy in place. We would expect to see a contract works extension as a minimum with a limit of £1m to cater automatically for these smaller contracts without the need for referral to insurers.

The public liability section of the policy has been extended to indemnify the Society in respect legal liability for damage to post office stock at any sub post office operated by the Society, tokens, stamps telephone cards, lottery scratch cards and the like, dividend stamps and redeemed dividend stamp books.

The policy should also note the interest of contractors as a joint insured in respect of existing structures where this is required by contract.

The limit of liability any one claim is £25,000.

• The basis of cover for business interruption should be the subject of an urgent review as the current arrangements expose the Society to significant potential loss. Certainly the documentation is inaccurate and such a lack of clarity is very worrying.

The cover does not include vehicle excise licences for which you are responsible.

• Cover in respect of ATM’s is limited to £ 2,500 and subject to specific conditions relating to filling or removing money from the machines.

The gross profit cover is limited to specific premises as noted on the policy with a sum insured of £17.1m and an indemnity period of 24 months. We would question why these ten premises have been selected for cover and not the remaining premises? We assume that they are your key retail sites and office locations.

There is also a policy condition that requires you to display notices in prominent positions when your premises are closed for business to confirm that the ATM holds no money.

Outside of business hours you are required to remove the money from the ATM, put it into a locked safe, details of which have been approved by insurers, and ensure that the door to the ATM is left open.

Further the policy document states that the sum insured for gross rentals is £26,971,639 with an indemnity period of 36 months. This is the legally binding contract between the Society and insurers

This is an onerous condition and we are unsure as to how you can comply with this unless all units, where there is an ATM, have a safe.

We believe that the £26m figure reflects the 12 months gross rental only. There is a significant danger that in the event of a major business interruption loss, insurers would rely on the policy wording and would apply Average to any settlement.

The unspecified safe limit is £3,000. The limit in respect of safes outside business hours where details have been lodged with insurers is £1. This doesn’t appear to be correct. These limits must be reviewed for adequacy.

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We would recommend a full business interruption review as a matter of urgency to include all aspects of the business including supply chain and IT risks with a full review of your business continuity plans.

• The policy definition under the Bluefin wording for our retail clients includes telecommunications and a £5m limit would apply. Your policy restricts the cover to £100 per day for each failure with an aggregate limit of £2,500.

• The sum insured in respect of additional increased cost of working is £2,081,951 with a 12 month indemnity period which should be reviewed. This extension can provide incredibly valuable flexible protection following a loss.

We consider this limit too low and would recommend that it is reviewed.

• There is no cover for advanced loss of profits leaving you vulnerable to uninsured losses in the event of damage to new build developments, or whilst buildings are undergoing refurbishment.

• There are premium implications for all business interruption extensions and these should be reassessed to ensure that they are appropriate to the business both in terms of the limit of liability and indemnity period.

• The policy includes cover for unspecified suppliers, customers and storage sites with a limit of £250,000.

The position regarding your suppliers should be reviewed. The limit of £250,000 appears low but without understanding your supply chain arrangements or your business continuity plans it is not possible to recommend a limit.

• The denial of access cover is limited to “damage” only and the policy has not been specifically extended to include bomb hoax. A situation could arise where you are denied access to your premises when there has been no damage but the emergency services believe there is a risk.

The policy should be extended to a non damage basis.

• Loss of attraction is a key extension for retailers who rely upon “passing trade” to other larger shops, particularly within a shopping mall.

Cover under your policy includes reduction in turnover due to a fall in custom that has resulted from damage elsewhere within a one mile radius of your property. The extension will only relate to premises specified under the business interruption section.

• Cover in respect of failure of utilities is limited to £50,000 and subject to a four hour excess.

We consider this limit too low. For our retail clients we recommend a sum insured of £5m with a three hour excess.

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Insurance Solutions

Lincolnshire Co-operative Society

Woolworths stored cardboard waste in open skips and was deemed accountable when a trespasser set light to the waste and the resulting fire spread, causing damage not only to a neighbouring building, but also to the substantial amount of stock it contained. It may seem harsh that they were held responsible for the losses caused by the trespasser, but what the court had to determine was whether Woolworths were aware of the risk and whether they had taken reasonable steps to minimise it.

• There is no cover for deterioration of frozen food stock under the commercial combined policy.

The Machinery Business Interruption policy placed with Allianz, 61/NP/17732448/7 provides loss of gross profit cover arising from breakdown of pressure plant only and does not include the freezer units.

Cover for deterioration of stock should be reviewed.

Premium is relatively low particularly when the freezer units are covered by a maintenance warranty.

Retailers can also have an increased fire risk in view of the amount of flammable materials in store.

Freezers and chiller cabinets often incorporate insulation materials which can be highly combustible and assist in the rapid spread of fire.

The potential costs could easily exceed the current limit of indemnity.

Public and products liability • As an area of law, public liability affects every business and in insurance terms, it carries high value risk and the potential for major litigation proceedings.

Excess coverage is in our view essential and the costs are relatively modest. Indicative premiums (net of IPT) for increased cover are:

Whilst we do not want to exaggerate the consequences of not having higher limits of indemnity, the highest damages award for injury is £11.15m. Whilst this was as a result of a road accident, the same principle would apply to any claim for catastrophic or life threatening injuries.

£10m in excess of £10m – £7,500 £40m in excess of £10m – £20,000 We have commented later in the report on where we can deliver improved risk management to allow you to target the challenging areas in the business which may be responsible for the claims.

With effect from 11 September 2012 the Society increased the limit of liability from £5m to £10m.We have benchmarked this limit against those of other major retailers including other Cooperative societies for whom we act and in our opinion £10m remains too low.

• Pharmacists providing a healthcare service, either directly or indirectly to patients or other healthcare professionals, owe them a duty of care. We assume that all pharmacists and locum pharmacists employed by the Society have arranged their own professional indemnity and public liability cover through the National Pharmacists Association (or a similar body) which provides a limit of liability of up to £10m for its members.

There is the potential for a negligently caused fire to result in injuries to visitors to your premises and for potential claims from neighbours for damage to their property with resultant business interruption losses.

The Society could also be liable if arsonists or vandals trespass on your premises causing damage to adjacent buildings.

However it is possible for the Society to be exposed to claims for vicarious liability. If the pharmacist commits a negligent act or omission while acting in the course of their employment, the employer can be held to be liable for any resulting claim. This can apply even in situations where the negligent act was expressly forbidden by the employer, or where the omission represented a failure to follow reasonable instructions given to the employee by the employer.

A High Court case required Woolworths to pay for fire damage to neighbouring premises when arsonists struck.

The cover provided by the policy for the pharmacies should be thoroughly reviewed and include if necessary cover for medical malpractice.

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• We note that the policy has been extended to include financial loss with a limit of £1m to provide cover where there has been no actual damage to property but a third party has suffered financial loss as a result of your negligence.

Employers liability

• We would review the extent of cover under the policy in respect of professional services particularly in relation to the supply of advice in relation to mobility aids.

• The definition of Bodily Injury should be extended to include distress, mental injury and mental anguish.

• The definition of persons insured should be extended to include locum pharmacists for both the employers and public liability sections.

• The policy excludes Racing and Race Practice and Driving outside the UK.

• We note that the policy has an inner limit in respect of terrorism of £5m in line with our expectations.

Are these exclusions in response to specific risk exposures of the Society’s employees?

• The policy excludes cover for libel and slander or defamation.

The policy should be extended to include Advertisers Liability to cover libel, slander or defamation, infringement of copyright or title or slogan in any advertisement, publicity, article, broadcast or internet activity and arising out of your advertising activities.

• Cover in respect of legionella should be reviewed.

The policy has been specifically endorsed to include the cover with a limit of £1m.

We would recommend that legionella is covered up to the full policy limit of £5m and the excess liability policy extended to provide the additional protection.

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Insurance Solutions

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Personal Accident and Business Travel

Motor

• This section of the combined policy provides cover in respect of three categories:

• The current annual premium is charged on a deposit basis based on a loss ratio having to be below 50%.

• 24 hour cover for senior management

We would negotiate a higher loss ratio to 60/65% giving more likelihood that the balance would be waived.

Personal accident benefit 2 x salary • 24 hour cover for National Association of Cooperative Officials

• The policy has been extended, without cost, to include occasional business use cover for employees using their own vehicles on the business of the Society. We have noted that when on business delegated by the Board, directors receive mileage allowances for using their own cars, which we assume includes an element to cover class 2 business use.

Personal accident benefit 1 x salary • Cover for directors and management Committee members while carrying out Committee duties including travelling to and from such duties Personal accident benefit £20,000

• We know that members of the Board often use their vehicles to undertake roles and responsibilities for external organisations including charities or professional bodies for example the National Association of Funeral Directors.

Similar clients provide cover for all employees for occupational duties and this can be provided at a modest cost.

• The benefits under the travel section, particularly in respect of medical expenses which is currently £1m, are too low. We would expect to see a minimum of £5m.

The policy provides cover whilst the vehicles are being used on the business of the Insured only. The motor policy should be extended to include these external activities if they are undertaken.

We understand that your Chief Executive travels overseas in support of the Society’s charity work.

Some of the territories have been challenging including Rwanda. The policy limits should be reviewed.

In addition to this we note that the policy excludes flying or other aerial activities except whilst travelling as a passenger by a recognised airline.

This can sometimes be difficult to achieve in certain territories.

Insurers must be advised should there be travel which involves a flight by a non recognised airline.

Crime • The policy renewal date is the 1 January 2013 and the limit of liability is £1m with a £50,000 excess.

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We would recommend that you obtain terms to increase this limit to £5m.

• The limit of liability is £3m in the aggregate and as is usual there is no deductible under the policy.

• The policy includes financial loss but excludes subsequent Expenses incurred, resulting from a crime relating to Remote Access Fraud.

In the event that the limit of liability is exhausted then there is an additional limit per Non Executive Director of £300,000.

We are unsure as to why insurers have imposed this exclusion. This should be referred to insurers for clarification.

There is no simple answer or formula for deciding how much directors and officers liability insurance a company should buy.

• The policy is also subject to an additional Condition relating to Remote Access Fraud Precautions.

Each director or officer is entitled, subject to the policy terms and conditions, to have either separate or joint legal representation in the event of a claim.

Tour Operators Liability

The limit of liability could be eroded by legal defence costs alone.

• Cover for your tour operator’s liability is placed separately with a specialist insurer Vantage Insurance Services Limited.

Directors and officers liability insurance is only one element in the risk management process and should not be considered in isolation from other insurance and risk mitigation strategies.

• The limit of indemnity in respect of professional indemnity is £1m which having benchmarked this against similar clients is usual.

Every business has its own unique combination of internal and external factors which help determine the need for and the level of insurance required.

• The limit of liability in respect of public and products liability is £2,500,000. In our opinion this is too low and does not reflect the scope of cover purchased for all other Lincolnshire Co-operative business activities. We would recommend that the Society’s primary and excess liability policies are endorsed to provide difference in conditions and difference in limitations cover up to the current £10m limit of liability.

• The territorial limits are worldwide excluding USA/Canada.

• The policy includes defence costs incurred in respect of an environmental claim provided these arise from a wrongful act as defined by the policy. In respect of Pollution claims the prior and pending date is 4 March 2004.

• The requirement for FSA authorisation in respect of selling insurance imposes an insurance obligation.

The current policy does not have the appropriate extension.

• The policy includes Corporate Manslaughter proceedings.

• The policy is subject to conditions precedent in respect of notification of claims, investigations and reporting circumstances which is usual for this type of cover.

We would recommend that cover for professional indemnity is endorsed to include “sale of insurance” as referred to previously in this report.

Directors and officers liability

• The policy contains a premium payment condition which requires payment to be received by insurers within sixty days of inception. Underwriters retain the right to cancellation if there is a breach of this condition.

• The policy renewal date is the 1 January 2013 and as is usual for this class of insurance it has been underwritten on a claims made basis.

We would recommend that you clarify the position relating to the Prior Claims exclusion. It would appear from the policy wording that there is no cover for claims arising from or attributable to proceedings which existed prior to or were pending at the inception of the policy. We would recommend that full prior acts coverage is provided.

Pension Fund Trustees Liability We note from the renewal premium information provided that the Society have a Pension Fund Trustees liability policy. However we have not received a copy of the policy documentation and cannot therefore comment on the adequacy of the limit of liability or the scope of cover.

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Insurer security The economic condition of the European region has been put under threat as a result of the Euro zone crisis.

Insurer security has been put in the spotlight, although many market commentators have stated the financial strength of most insurers will remain resilient.

Risk retention The current retention levels are as follows: Policy

Retention

Material damage and business interruption

£750 all losses other than tenanted property where the excess is reduced to £350 £150 Computers £250 business all risks excluding fire, lightning and explosion £5,000 theft excess Doddington Road, , Moorland Way, Proctors Road and Whisby Road £1,000 fire excess Fleet Road Industrial Estate £1,000 subsidence

Public liability

It is essential that the Society select insurers who have the financial strength to participate in your risks and have the appreciation of long term partnerships.

Bluefin have a security committee, chaired by our Finance Director, to review all aspects of insurer security, based on ratings agency evaluations and insurance market opinion.

The current Standard and Poor’s rating for the insurers participating in your programme are:

£1,000 each and every third party property damage loss

Insurer

Rating

Allianz Insurance plc

AA-

Financial loss

10% or £1,000 whichever is the higher

Aviva Insurance Limited

AA-

Motor

£500 accidental damage and windscreen , Nil in respect of fire, theft and malicious damage

AXA Insurance UK plc

AA-

Chartis Europe Limited

A

24 hours

Chubb Insurance Company of Europe S.E.

AA

Machinery business interruption

Dual Corporate Risks Limited

Crime

£50,000 each and every claim

A+ (Lloyd’s Syndicate)

RSA Insurance plc

A+

We would expect to negotiate premiums for renewal based on a deductible of £1,000 for the material damage and business interruption policy which best reflects your own risk adverse culture.

CIS General Insurance Limited (CISGIL) was capitalised on 15 Jan 2006 as part of the restructure of Cooperative Insurance Society Limited (CIS). CISGIL has also assumed responsibility for the benefits and burdens arising from the run off of general insurance liabilities of CIS under the terms of an Indemnification Agreement.

It is important to continuously monitor losses within the deductible. We can then ascertain what the total cost of risk is to the Society and factor this in to any future decision on self insured retentions as part of a long-term strategy.

The company's ultimate parent is Co-operative Group Ltd.

Retentions can be used as a negotiating tool when the insurance market hardens in the future and the quality and integrity of your deductible analysis will be vital.

CIS General Insurance Limited do not subscribe to Standard and Poor’s rating. They have always worked on the basis that they do not need to be rated and it would add little value to the type of client they attract.

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Insurance Solutions

Lincolnshire Co-operative Society

Claims management We have not had an opportunity to undertake a full analysis of your claims data. We have noted that the largest single employer’s liability claim was for £233,769 (2007/2008) and are awaiting further details of the loss.

We encourage our clients to use our bespoke claims analysis and recording system, which can be structured to generate significantly more information about the circumstances of losses than is available to you currently.

We have also asked for details of the largest public liability claim where the figure provided is ÂŁ102,953 (2011/2012). We assume that this is possibly reserve quantum at this stage as it is a more recent incident.

Most importantly, the categories of information to be recorded and the options available can be bespoke to the client concerned.

We would want more detailed analysis to understand where incidents occur for example within the shop or on a forecourt, whether resulting from uneven surfaces, spillage or other forms of temporary problem.

In our experience the most common types of accidents in the various areas of business you operate are slips, trips and falls, manual handling and musculoskeletal injuries. However, there are also a relatively higher number of accidents involving moving vehicles, and accidents caused by objects moving and falling.

According to figures provided by the Health & Safety Executive, slip and trip accidents account for around 27% of all reported injuries to workers in the combined wholesale and retail sector, and 38% of accidents in that sector involve manual handling accidents such as lifting or carrying items.

Accidents inside the store may include slips, trips and falls, either on wet floors or because loose tiles have caused a tripping hazard. They may involve items falling from high shelves due to inadequate or unsafe storage, or when inappropriate or unsecured ladders are used.

However, there may also be risks in the external areas such as loading bays, parking areas or access areas.

Accidents can happen by being struck by moving vehicles or being hit by materials falling from vehicles.

They can happen if there is a problem that causes the vehicle to collapse or overturn, perhaps during maintenance checks.

Vehicles may be forklift trucks, vans or other large goods vehicles, or those owned by other companies such as third party logistics vehicles or refuse trucks that are regular visitors to your site.

At a time when other major brokers are encouraging their clients to deal directly with insurers on claims or outsourcing claims management to third party providers we continue to provide a claims management service that is second to none. We differentiate ourselves by retaining our own in-house claims team based in London.

Oil or fuel leaks onto the roadway cause a hazard if not dealt with quickly and efficiently, or appropriate signage put in place until it can be cleared. Potholes or rough surfaces also create tripping hazards, made worse if lighting is not adequate.

Without full claims data it is difficult make informed decisions to enable a targeted risk management response.

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Insurance Solutions

Lincolnshire Co-operative Society

The quality of this claims team is testament to the importance we attach to this area, but whilst they are an important resource, ownership of delivery of the claims service remains with the core service team. They have been involved in risk profiling to ensure that bespoke policy wordings have been designed which will operate as intended in the event of loss.

All large or contentious claims are referred to our claims director, to ensure the correct level of support in areas that may be beyond the expertise of the core service team. She is highly regarded within the insurance industry and is well known to senior managers within insurance companies and loss adjusters.

Claims are the real test of our service and we pride ourselves on our consistently proactive and effective management service to expedite property/interruption claims and challenge and defend, where appropriate, liability claims. We encourage where possible agreed basis of settlement or formula to expedite claims.

She also has a wealth of experience in dealing with large, complex or contentious losses and was directly involved in the successful outcome of a multi million pound Co-operative Society claim.

4. In the event of a large property loss we provide our clients with:

It may seem that once a loss has occurred, little can be done to influence its cost to the business. Nothing can be further from the truth.

• Automatic appointment of a nominated loss adjuster pre agreed with insurers, to avoid delays. We always ensure that we have good relationships with the loss adjusters we nominate, so that although their fees are paid by insurers, we are confident that there will be a fair settlement achieved.

Bluefin attach great importance to claims service. It is the delivery of the promise contained in the insurance contract. It is also a cost to the business that should be managed in the same way as other costs.

There are six aspects of claims management that we want to highlight:

Having our own Bluefin bespoke wordings means that the loss adjusters job is made easier and the invariable inclusion of a generous buffer for additional increased costs of working, which provides a convenient home for any expenses incurred which do not clearly fall into any other category also helps.

1. Claims management is delivered by the core service team. They are people our clients know, and trust.

More importantly they are involved in the business profiling and the design and specification of the insurance programme.

• Bluefin attendance at initial meetings with the client and the loss adjuster

2. We aim for efficiency for routine losses. Where significant volume of claims can be anticipated, we agree procedures for direct notification of claims to insurers in order to streamline the process. This would usually apply to liability and motor claims.

• Guidance regarding details to be recorded and the best way to present the claim to ensure optimal settlement value.

We would agree pragmatic reporting parameters to reduce administration.

5. Defence of legal liability claims is a hugely important issue. There are situations in which clients require commercial considerations to be taken into account. We assist our clients in identifying defensive material for insurers to use in dealing with claims. We then monitor their performance to see that it is used effectively.

We attend quarterly meetings on claims management. Where liability claims are to be challenged and defended, we ensure that this is handled with sensitivity and that, if a claim must be settled, this does not happen without our client’s prior agreement.

We have also experienced the significant benefits of Bluefin undertaking liability defensibility training for retail managers would be happy to put together a training programme to deliver this for the Society.

3. Bluefin use an innovative and integrated risk management system to support claims management and enable detailed recording of insurance incidents, trends and/or claims providing excellent management data.

The system is Figtree which is accessible via the internet and we would be happy to arrange a real time demonstration of the benefits for the Society.

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In addition we also: • Undertake bespoke claims review and audits.

• Challenge insurer’s reserves to ensure that there is no prejudice to premium negotiations through unjustifiably large reserves on either liability or property claims.

• Review loss circumstances to ensure that any lessons that can be learnt are taken forward in the business through changes in procedure or additional training.

• Link up with our risk management colleagues to provide post loss and loss prevention guidance.

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Risk management Risk management is all about managing opportunities as well as threats to the business and creating an environment where there are no surprises. We understand that Richard Busbey heads up your Health and Safety department. His team undertake to visit each trading location every six months.

• Understand their disaster recovery/business continuity plans or the strategy to develop these • Make practical suggestions for possible improvements to policy and procedures Recognising these issues, we have evolved a range of services to complement our core insurance broking activities:

CIS work in partnership with Aviva Risk Management Solutions, who provide a risk helpline, e training and consultancy for CIS clients.

• Annual asset and revenue protection audits at key sites, accompanied by insurers if this is one of their requirements.

Bluefin’s risk management services help our clients to: • understand the issues surrounding specific risk areas, and the way in which they impact on their business. These include operational hazards for example asset and revenue loss/damage exposures, contingency planning, health and safety of employees and the public and associated legal compliance issues.

• Motor risk management, including a review of motor accident records and fleet management arrangements, with recommendations for improvements • Review of all liability claims to establish any specific problem areas of causes that should be addressed on an ongoing basis

• manage the business to reduce the likelihood of losses occurring, or their impact on their business if they do

• Annual review meeting with the Health and Safety Manager to fully understand policy and procedures in this key area.

• analyse relevant data regarding claims to identify specific issues that should be addressed in their business

We note from your web site that you also provide store to door delivery services from eight of your food stores and also from your home stores. We would recommend a review of your lone worker policy, which would also apply to home visits in respect of the funeral services.

• prompt management at all levels to understand the link between accidents and insurance costs, and the importance of adherence to operational procedures • evaluate, prioritise and control their risks, including high level threats which sometimes have no insurable solution but which could impact the business.

• Continual dialogue regarding risk management through contract conditions which is an important discipline, since these represent both a threat and an opportunity for any business.

Our pragmatic risk management support also plays an important role in presenting the client’s business to the insurance market.

• It is also vital to have control of management information from a statutory perspective. An example of this is that it is now usual for our clients to have online access to the engineering plant schedule and certificates. It allows clients to:

Minimising total cost of risk requires more than purchase of effective insurance by the broker at competitive premiums.

• view the status of engineering reports

Insurers reserve their most competitive terms for businesses with a genuine commitment to risk management, for whom a good loss record is a result of positive actions rather than simply good luck.

• create exception reports to highlight plant with defects • take data from reports to create management information

As a minimum we need to: • Fully understand the client’s approach to key areas, particularly liability exposures and employee health and safety

• identify follow up actions

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Lincolnshire Co-operative Society

• keep important data in one place which is particularly relevant when you have more than one site.

• Reporting of issues which are the responsibility of the other party. For example, responsibility on the part of the tenant to alert the landlord when maintenance work is required. The tenant can ensure that accidents are avoided through prompt notification. Can the tenant be held responsible for any injury where they have failed to notify the landlord?

Tenanted property We act as brokers for a number of large property companies and among the issues we debate with them are:

Whilst it is tempting to make tenants responsible for as much as possible, we urge our clients to be aware that it is their reputation which is at stake in the event of a serious accident. If there are fatalities involved it may be that HSE or the courts will take a serious view of attempts to abrogate responsibilities if this is disproportionate to the knowledge and resources of the respective parties

• They own the property; they insure it, yet many of the potential causes of loss or damage are in the tenant’s control rather than their own. How can the tenant be motivated to take care of the client’s property?

• There are continuing pressures to ensure that the premiums charged remain fair to the tenant. This introduces a possible constraint on the ability to generate income from insurance premiums. Still, it should be possible to structure earnings to compensate for internal costs in areas such as premium invoicing and collection, claims administration and risk management. It is also possible to benefit from profit share arrangements.

• We are sensitive to the tensions that exist when properties become unoccupied, which we realise, can sometimes occur with little or no notice. We work hard to ensure that there is no requirement to notify insurers when this occurs and insurance protection does not become restricted.

• We have a flexible system for generation of documents such as invoices and cover summaries.

These can be bespoke to our clients’ individual needs.

Bluefin have a number of large property owning clients and we have developed bespoke software packages to support their specialist requirements, including individual cover summaries and premium advice notes for each tenant. We would welcome the opportunity to demonstrate the value that this could bring to the Society.

• There must be a clear delineation of responsibilities between landlord and tenant for: • Compliance with statutory obligations such as electrical inspections • Maintenance of premises and equipment

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About Bluefin As one of the UK’s top ten independent insurance brokers, we have a network of 46 offices, 12 of which are dedicated to corporate business and employ 1400 staff which makes us a powerful partner for our clients.

We currently act as insurance advisers and risk management consultants for both the Midlands and Midcounties Co-operative Societies with whom we enjoy a very good relationship. If required we would be happy to ask them to act as a reference so that you can hear first hand about our service approach and ability to deliver on our promises.

Bluefin was launched on 6th January 2009 as a leading financial services brand and combines the established businesses of Venture Preference, incorporating Stuart Alexander, Smart & Cook, Layton Blackham, The Davis Group and SBJ UK. SBJ Limited is the longest standing and was incorporated in 1928.

Professional indemnity insurance We confirm that we comply with all regulatory requirements in respect of professional indemnity insurance. We have a limit of ÂŁ10m any one loss and the policies are underwritten by Markel and other participating insurers. The renewal date is 31 October 2013.

We enjoy the backing of AXA UK plc, part of one of the largest financial services companies in the world, while remaining truly independent in the advice we provide and the insurers we recommend. We operate under a separate Financial Services Authority registration.

Our Corporate Division provides a range of risk advisory and insurance solutions to some of the largest companies in the UK, including some of the best known names in the FTSE 500.

Placing around ÂŁ600m into the insurance market enables us to develop strong long term relationships with our insurer partners which mean that we can negotiate competitive premiums for our clients, often securing terms that are not available elsewhere.

We have been awarded the status of Chartered Insurance Broker by the Chartered Insurance Institute in recognition of the level of insurance qualifications held by our staff.

We have recently announced the launch of our new company vision and values. Our vision is a simple statement that goes right to the heart of what we plan to achieve which is to be: Respected for delivering excellence in value, advice and service to our clients.

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Bluefin service Lincolnshire Co-operative requires a broker who adds value as part of an inclusive relationship that supports and dovetails with your own resources, none of who are full time insurance professionals.

This is a typical requirement and we pride ourselves on the flexibility of our response to this need. Your account would be serviced by a very experienced and motivated team from within the Corporate Division, who provide a highly professional and proactive service to clients. Unusually for the insurance sector, key members of the service team have worked together for over ten years, providing strong continuity and a consistent approach at a time of great challenge.

Core team Who

Mike Bruce

Diane Ashworth FInstLM

Kate Martin Dip CII

Relationship Director

Executive Director

Senior Account Broker

Experience

30 years

30 years

10 years

What

Ultimate responsibility for the effective delivery of service to you, and for its quality

Overall responsibility for day to day strategy and delivery

Day to day contact for our Cooperative clients

Responsible for providing leadership, strategy and delivery Mike has overall responsibility for the senior relationship with Midcounties and Midlands Co-operative Societies

Contract and licence agreement Supporting Diane in broking reviews responsibilities Claims review meetings including quarterly claims analysis Ad hoc health and safety and risk management advice General update on insurance market developments

How

Annual strategic review prior to renewal

Formal quarterly reviews, including renewal

Support and advice to day to day Process agreed agendas service team Respond to new issues as they arise

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All aspects of account administration including claims Kate’s current responsibilities include the day to day management of both Midcounties and Midlands Cooperative Societies Formal quarterly reviews, including renewal Process agreed agendas Respond to new issues as they arise

Insurance Solutions

Lincolnshire Co-operative Society

Additional service team Who

Rita Thorpe

Mike Denyer NEBOSH Dip

Ann Stone ACII

Project Director

Risk controller

Claims Director

Experience

30+ years

20+ years

30+ years

What

Special projects

Specialist advice on all aspects of asset protection and health and safety

Support to the claims service team

Formal audit visits to selected locations including the distribution centre as required

All claims which exceed ÂŁ50,000 and any contentious matters are automatically referred to her

Responsible for strategic audit and review

How

Independent audit of files and policy wordings Claims analysis Special projects for example cyber liability

Specialist input into protections and procedures Audit programme if required

Involvement in contentious or difficult issues enables Bluefin to negotiate bespoke policy wordings for clients with insurers to eliminate potential areas of dispute Ann was responsible for the successful outcome of a multimillion pound claim for a Co-operative client

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Bluefin core service Ultimately, we would want to be seen as our client’s outsourced insurance department, providing professional and timely advice in respect of all aspects of their insurance and risk management needs.

Operationally we envisage a relationship built around a series of key activities and timeframes, as outlined below. These timelines are set for clients where we start our renewal negotiations in excess of 3 months prior to renewal.

Activity

Timeframe

Understand your business

Ongoing

Obtain relevant renewal information

Commencing immediately

Design insurance programme and negotiate terms

During 3 month period prior to renewal

Consider programme design and insurer options

During 3 month period prior to renewal

Confirm cover

By renewal date

Agree policy wordings

By inception

Issue documents: • invoices • insurance programme summary • administration procedures • policies

By renewal date, for immediate payment Within 1 month of renewal

Strategic/service review meetings

Quarterly

Additional meetings in specific circumstances

As required

Summaries of discussion

Within 2 weeks of meeting

Respond to queries/correspondence

Within 5 working days (or 10 days from quotation requests)

Risk control strategy

To be agreed

Agree reporting procedures for claims

Prior to renewal

Establish basis for recording and analysing loss/claims data, depending on your requirements

Within 1 month of renewal, with quarterly provision of reports

Bluefin response to various stages of handling of any claims that are notified to us or to any problem with any aspect of claims service provided by others

Within 5 working days

Advice on quantification/documentation of major claims

Ongoing

Monitor adjuster/insurer performance

Ongoing

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Insurance Solutions

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Renewal 2013 timeline We have identified the critical steps which we feel need to take place sequentially, if we were appointed as your insurance and risk management advisers, to obtain the optimal result for Lincolnshire Co-operative. These are explained below:

Step

Feb

Mar

Apr

May

Jun

Jul

Decision made – broker appointed Takeover policies/documents/files etc Review meeting with the Society Agree and define scope of risk management support Establish position with existing insurers Audit current policies, report findings and recommendations Identify and evaluate risk exposures (Risk Profile) Design renewal questionnaire and assist in completion Update run off experience from previous insurers Challenge and verify insurer claims data and review with the Society Return of renewal questionnaire from the Society Presentation to insurers/ tripartite meetings where appropriate Undertake cost benefit analysis Programme design Issue renewal options and recommendations Place programme Issue invoices within agreed timescales Issue updated policies and certificates Issue policy register Post renewal review with the Society

We have a tried and tested process to deliver the optimum results for our clients:

• We undertake market briefings with selected underwriters to maintain momentum and to differentiate our clients in the market

• We generate insurer appetite and competition to provide momentum to the pre renewal strategy

• We compile a detailed risk presentation document to educate the insurance market. This is validated by the client. It provides a comprehensive detailed insight into the client’s culture and operations with particular emphasis on risk management strategies, claims history and commitment to improving risk.

• We regularly undertake a claims review to challenge reserves and to avoid over reserving.

Inaccuracies in claims data will impact insurer competition and premiums.

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Insurance Solutions

Lincolnshire Co-operative Society

• We facilitate insurance market open days to raise awareness and increase insurer competition for our client’s business. This gives insurers the opportunity to meet with clients and gain a first hand understanding of their business.

Communication: Keeping you informed

Our objectives for 2013/2014 would be to:

We pride ourselves on the quality of our communication with a key objective being to give our clients the opportunity to make fully informed and timely decisions.

As a professional insurance and risk management adviser effective communication is vital with our clients.

• Understand your business including new and emerging risks and deliver a package of protection which is specific to your needs

Elements include:

• Review your deductibles ensuring the right balance between deductible and premium level. Greater self-insurance need not mean greater risk to the balance sheet.

• Clarity regarding risks that are insured and those which are consciously uninsured.

• Claims procedures which are an integral part of our documentation, together with clear advice regarding issues that should be highlighted to us in advance in order for cover to be operative.

• Increase insurer competition to drive down premium costs and ultimately your total cost of risk.

• Ensure that you have access to the decision makers in the insurance market

• Updates on topical information, including insurance market developments on an ad hoc basis and quarterly review meetings as discussed in more detail below.

• Review the scope of cover for the policies currently in force.

• Identify uninsured and/or underinsured exposures.

Quarterly review meetings are the cornerstone of our relationship, where issues discussed always include: • Progress on matters previously raised, including any risk improvement recommendations made.

• Updates on risk management and health and safety projects undertaken by Bluefin to ensure that we communicate actions undertaken to insurers effectively and thus obtain the best terms available from the market.

• Changes within the Society that might affect the format of the insurance or risk management programme.

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Insurance Solutions

Lincolnshire Co-operative Society

• Developments in the insurance market or other changes that might affect the format of the insurance or risk management programme.

• Claims review, to ensure that any own damage losses are being settled quickly, liability claims are being defended wherever possible and that causes of loss are scrutinised to ensure that any possible actions to prevent future recurrence are identified and implemented.

• Service delivery and relationship issues with Bluefin, insurers and loss adjusters.

However, any problems or changes need not be left until the next meeting. We prefer to discuss them at the earliest opportunity.

Reporting requirements and extranet Policy documentation is provided within 30 days of renewal, but is contract certain from renewal.

In addition to hard copies of these documents, soft copies are available to clients through the Bluefin extranet facility to which clients have access via an exclusive user name and password. We would be happy to demonstrate how the extranet works.

Many of our clients find the extranet a very useful facility and consider it to be their ‘online filing cabinet’.

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Insurance Solutions

Lincolnshire Co-operative Society

Remuneration The Society has asked Bluefin for a remuneration proposal to deliver insurance and risk management services.

We would propose a three year broker agreement with the fee reflecting the work we believe is essential in the first year. Our proposal is as follows:

The basis of our remuneration proposal is transparent and commensurate with the extent of our professional responsibility and the level of service to be provided.

We have a realistic understanding of the work that will be required to ensure that the optimum result is delivered to Lincolnshire Co-operative in cost and scope of cover.

Year one

£30,000

Year two

£27,500

Year three

£25,000

We may also earn additional remuneration from insurance companies for work undertaken on their behalf as distinct from the services we provide to clients. This is known as Insurer Services Brokerage (ISB) and applies to commercial business placed on a net or nil commission basis.

Our fee will be based on what is truly important to you, the Society, with the service you require and, ultimately, your level of satisfaction.

We know from experience that the quality and integrity of our work, including our risk presentations and in particular our claims analysis, have a positive influence on insurers’ premium and terms.

Examples of the sort of work we may undertake include the production and issue of policy documentation, evidence cover in line with FSA requirements, the provision of Health & Safety and risk management services, claims advice, guidance and support, premium accounting and regulatory audits of our in-house systems and processes to verify compliance with FSA regulations and contractual agreements.

We strongly believe that the role of the broker does not cease after renewal and we pride ourselves on the quality of the continuing service we provide to our clients.

We normally work on the basis of a fixed fee, whereby all aspects of service are included, and the only basis for adjustment is unanticipated events such as an acquisition.

Clients are entitled, at any time, to request information regarding any remuneration which we may have received as a result of placing their insurance business.

All premiums are negotiated net of commissions to minimise the level of non-recoverable insurance premium tax payable.

We understand how important it is for the Society to take control of the claims data and we confirm that our fee would include: • An audit of current claims files to assess proactivity, reserves and insurer performance • A review of claims processes and communication flows to ensure efficiency and effectiveness • A trend and causation analysis to identify and design corrective risk management strategies (this would form part of our regular analysis) • A liability claims triangulation to chart the development pattern of losses over time and project the accuracy of early estimates and/or the likely total paid incurred based on any movement in value of the original estimates

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Insurance Solutions

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The next step We believe that our report demonstrates how we could add value to your insurance and risk management arrangements, ensure value for money for your members and how we could work in partnership with the Society as your outsourced insurance department.

Bluefin is different to other brokers; both our clients and insurers tell us so. We never forget that we work for and with our clients. The things that make us different mean that we are a safe pair of hands for Lincolnshire Co-operative. In particular: • Our people: • Are stable and consistent: many of our proposed service team have worked together for over 10 years and form the core of our dedicated Cooperative Society service team. They have a vast amount of experience and an excellent understanding of The Co-operative Society and its values.

• Deliver a powerful, professional and personal service.

• Are very experienced in the necessary skills of listening and analysis.

• Are extremely knowledgeable about technical insurance matters.

• Are skilled negotiators on cover as well as price.

We are more demanding on behalf of our clients.

• We reject stereotypes, preferring a bespoke approach to both risk profiling and insurance specification. We are challenging with ourselves, with our clients and with insurers.

• Our structure is designed to be responsive, with service all being provided from within a small, stable and high quality team.

• We are fanatical about detail.

• We are committed to our clients; we do not just say things: We deliver

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Insurance Solutions

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Notes

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bluefingroup.co.uk Bluefin Insurance Services Limited is authorised and regulated by the Financial Services Authority. Registered Office: 5 Old Broad Street, London EC2N 1AD. Registered in England No: 931954