Victoria’s water utilities have joined forces and established a unique insurance scheme which provides all 19 bodies with broader insurance cover and substantial savings.
The Victorian Water Industry Joint Procurement Insurance Review has saved the industry an estimated $6.9 million in insurance costs, while improving the quality of policy coverage.
Led by a Steering Committee made up of risk managers across the water corporations, including Yarra Valley Water, Melbourne Water, South East Water, Grampians Wimmera Mallee Water, Western Water and East Gippsland Water, the initiative is an example of how working together can equate to substantial savings across the total industry.
The three-year agreement with insurance broker Jardine Lloyd Thompson (JLT) was secured through a conceptual tender process, requiring the 19 water organisations to work together and develop a comprehensive underwriting submission to submit, via an open expression of interest (EOI), to insurance brokerage firms.
The EOI required the group to develop common best practice policy wordings, attend presentations from potential brokers and liaise with industry experts on effective strategies for marketing the 19 individual insurance programs as a combined premium pool.
Yarra Valley Water’s Safety & Risk Manager and Steering Committee Chairman, Frank Portelli, believes this industry collaboration was a first for the water sector and meant the savings achieved would ultimately help benefit customers.
“We’ve seen water organisations work together in the past on joint procurement projects; however, this is the first time the whole industry has come together to really benefit,” Mr Portelli said.
“The saving far exceeded our initial expectations and is a great example of not only industry collaboration but also leveraging off market conditions approach made us really look for innovative ideas, and in this case we were able to secure the best outcome for both business efficiency and cost,” he added.
Damian Schinck, Managing Director, JLT Corporate Specialty, said “Offering an industry-wide approach created the unique opportunity to design an insurance program through analysis of the risk profiles and existing coverages of each individual corporation.
“The end result was a uniform ‘industry best practice’ program, created in a highly cost effective and administratively efficient manner,” Mr Schinck said.
“The role of the Steering Committee was extremely important in the success of the delivery of the program. The committee greatly assisted in analysing issues and options then facilitating speedy decision-making by all 19 corporations at critical times during complex and time constrained phases of the process,” he added.
Industry expert firm Inscon was also engaged to assist in the administration of the tender, to bring industry insights and market knowledge to the table.
On average, a saving of 50 per cent was made from the expiring premiums and associated services, which equates to $6.9million per year across all 19 corporations. For example, for Melbourne Water, the total forecast insurance premium cost saving compared to last year is approximately $1.5million, which has been realised and recognised by the finance and procurement team.
Importantly, the financial savings were achieved whilst also improving the quality of policy coverage; for example, improved limits and sub-limits, lower deductibles, and long-term policies and agreements are now in place. Consolidation of smaller policies have also added to the value generated to the corporations.
Unified insurance the best policy
The Victorian Water Industry Joint Procurement Insurance Review is an initiative driven by the water industry’s commitment to produce lower water bills for Victorian water consumers.
In 2010, as part of the Victorian Competition & Efficiency Commission (VCEC) Shared Services Project, cost savings from joint procurement of insurance brokerage and claims management services across the Melbourne metro water corporations was identified. A shared services tender involving Barwon Water, City West Water, South East Water and Yarra Valley Water resulted in significant premium savings for these organisations.
Following this success, all Victorian water corporations planned the extensions of their individual policies, so that by 30 June 2015, renewals of expiring policies and associated services would fall at the same time.
The review led to a significant reduction in the cost of insurance attributable to very competitive insurance conditions and the restructure of policies, coupled with the increased buying power delivered through the shared services model.
By engaging an industry expert and an independent probity adviser, the team has successfully delivered a robust procurement process with high probity standards to ensure transparency and fairness, which was extremely challenging in the case of such a high number of stakeholders.
A key success factor was the energy, drive and leadership of the Steering Committee to do the legwork and make fact-based recommendations to the wider group.