Insurance and risk management

Insurance assists an incorporated association to manage its risks by providing cover against a range of unexpected events that may otherwise leave the association in difficult circumstances.  An incorporated association should give careful consideration to its insurance needs and obtain professional assistance to ensure that it has appropriate insurance that suits its size, activities and resources.  This chapter provides an overview of the kinds of insurance products that an incorporated association may wish to consider, and some tips on obtaining insurance.

Key Points

  • There are various types of insurance cover that an incorporated association may require.
  • Some insurance is compulsory for incorporated associations (eg workers' compensation for employees).
  • A financial institution providing financial assistance to an incorporated association may insist on the association maintaining certain minimum levels of insurance cover.
  • An incorporated association should have a proper risk management program.
  • If in doubt, get professional advice from an insurance broker or lawyer.

Reasons for obtaining insurance

There are various reasons why an incorporated association may wish to obtain insurance.  For instance:

  • becoming incorporated does not mean that an association is protected from being exposed to risk;
  • there are certain compulsory insurance requirements imposed by law that may apply to an incorporated association.  In addition, a financial institution providing financial assistance to an incorporated association may insist on minimum insurance coverage;
  • an incorporated association may acquire property or other assets that require or justify insurance protection;
  • an association may organise or participate in activities that require or justify suitable insurance (e.g. sporting activities) or
  • an incorporated association's members, executives, staff and volunteers may need to be insured against certain risks or personal liability that may arise as a result of their role in the association.

Types of insurance

It is theoretically possible to obtain insurance for almost any event or occurrence if there is an insurer willing to provide cover and the incorporated association is prepared to pay the premium.  It can become confusing when considering all the different types of insurance products available and the assistance of a qualified adviser is advisable. 

The following sets out some of the common types of insurance that may be relevant to incorporated associations.

  • Professional indemnity - to cover claims in respect of a breach of duty in the course of carrying out the organisation's usual activity or functions.
  • Portable/ valuable items - to cover loss of specified items.
  • Goods in transit - to cover loss of or damage to goods during transit.
  • Theft - to cover theft of contents, cash and stock.
  • Fire and defined events - to cover loss or damage to property at premises caused by a defined insured event; e.g. fire, explosion, earthquake.
  • Glass and signs - to cover damage to glass or signs, e.g. fractures and breakages.
  • Events insurance - to cover an event, such as a fête, against loss (e.g. cancellation due to bad weather).
  • Workers' compensation - to cover injury to employees for accidents associated with work.
  • Public liability insurance - to cover claims brought by third parties for general legal liability; e.g. negligence
  • Personal and property insurance - to cover injury or damage caused to people or property
  • Directors’ and officers’ liability- to cover directors and officers against legal liability which may arise out of their role.
  • Volunteer insurance - to cover volunteers for personal injury and public liability while carrying out work.
  • Building insurance - to cover the owner of the physical premises against events such as fire, storm and vandalism.
  • Legal expenses - to cover the cost of defending legal rights in relation to disputes.
  • Fidelity guarantee - to cover against misappropriation of funds by employees or committee members.
  • Commercial vehicles - to cover commercial vehicles for theft, fire, accident.

Compulsory insurance

Some insurance cover is compulsory under applicable laws and an incorporated association should consult a qualified adviser (such as an insurance broker or lawyer) to determine its compulsory insurance obligations.

For example, it is compulsory for an incorporated association that employs staff to have workers' compensation insurance.

In addition, in some cases, a financial institution providing financial assistance to an incorporated association will insist that the association has certain minimum levels of insurance cover, such as public liability cover and professional indemnity cover.

Public liability insurance

Public liability insurance generally covers claims brought by third parties against an incorporated association in respect of personal injury or property damage that may arise out of the activities of the association.  This is particularly important for associations that interact with the public (eg at premises open to the public or at public events, such as sporting activities).

Deciding on insurance

Insurance may become an increasingly large component of an incorporated association's expenses.  Although it may be tempting for an incorporated association to decide that certain non-compulsory insurance is unnecessary, therefore reducing insurance expenditure, some non-compulsory insurance may be essential to the future viability of the association. 

An incorporated association should consider the cost of non-compulsory insurance against the risks covered by that insurance in the context of the activities carried out by the association.

An incorporated association may wish to engage a qualified insurance broker to assist it to put in place an insurance programme that suits its requirements.  Whether using a broker, obtaining insurance directly or obtaining insurance by any other means, it is important for an incorporated association to discharge its duty of disclosure to the insurer prior to obtaining insurance.  The insured (i.e. the incorporated association) is under a legal duty to disclose to the insurer any matter known to it – or that a reasonable person in the circumstances of the insured could be expected to know – relevant to the decision of the insurer whether to accept the risk and if so on what terms. (This is the same duty of disclosure that is required by any person arranging his or her home or motor vehicle insurance.)

A failure by an incorporated association to discharge its duty of disclosure to an insurer could enable the insurer to reduce the amount paid in respect of a claim or even decline to pay the claim altogether.

As a word of caution, an incorporated association should note that an insurance policy might not entirely cover the risk that is being insured for. Often, a policy will be subject to exclusions (eg for fraud), be limited to a maximum aggregate claim amount or a maximum amount per claim, and will often require excess payments to be made on claims.

An incorporated association should conduct, on a regular basis, a thorough review of its activities and risks in order to assess whether its existing insurance program provides appropriate cover.

Exclusions

Exclusions in insurance policies are those events, occurrences or types of damage or loss not covered by a policy.  Exclusions can vary from one insurance policy to another. An incorporated association should pay special attention to any exclusions when considering the type and extent of cover. 

Some examples of common exclusions are:

  • workers' compensation and professional indemnity cover may not extend to volunteers;
  • the loss of cash kept on premises may not be covered;
  • items valued over a certain amount may not be covered; and
  • the use of private cars for work purposes may not be covered under the owner's private car insurance.

Risk management

‘Risk management’ is a term used to describe a formal and structured process of identifying and managing risk.  Generally speaking, it involves assessing, and then actively managing, an organisation’s potential exposure to loss, damage or litigation.

Buying insurance is one part, but not the only part, of a risk management programme.  By paying the premium, the insured transfers some of its risk to a third party insurer.  In many cases, effective practical strategies for reducing risk, such as safety protocols and security devices, can work together with insurance to reduce risk exposure.  Indeed, some risk management strategies may result in reduced insurance costs by reducing the likelihood of claims.

Basic risk management steps

There are a number of basic steps involved in the process of managing an incorporated association's risks.  It is essentially a process of identifying each risk, evaluating each risk, deciding what actions need to be taken to address or reduce each risk and constantly monitoring and reviewing the process.

  1. Identify each risk.  This requires a thorough analysis of the association's operations, activities and business.  The aim is to identify what goes on in the association, what risks it is exposed to, what kinds of events occur that may present risks, and so on.
  2. Assess risks and consequences.  Assessment requires balancing the likelihood of a risk occurring against the potential consequences.  The association needs to decide which risks it will act upon and which risks it will ignore.  For example, an association may choose to avoid a risk by not continuing with a particular activity, or determine that the risk is so unlikely to occur that it does not require any action.
  3. Treat risks.  The association then needs to decide how it will deal with and manage each relevant risk.  This involves considering any existing risk control measures (eg insurance, security alarm), deciding whether the existing measures are adequate, considering any additional measures that may be required and so on.  This is also an exercise in balancing cost with consequences.
  4. Monitor and review the process on a regular basis.  It is important to regularly review if there has been any change in the association's risk position and, if necessary, repeat and review the process set out above.

Potential areas of risk

It is almost impossible to produce an exhaustive list of all potential risks that may apply to an incorporated association, as there are so many variables. 

However, common examples of categories of risk include:

  • individual and public health and safety;
  • security considerations (eg premises, records, computers);
  • financial and administrative risks;
  • reporting and legal requirements;
  • professional liability;
  • general liability;
  • potential for error or accident;
  • potential for damage; and
  • potential for litigation.

Some hints when considering insurance and risks

  • Obtain professional advice and assistance from a qualified insurance broker.
  • Investigate group insurance schemes (e.g. National Professional Indemnity Scheme for Community Legal Centres).  Group coverage policies may reduce premium costs.
  • Check if group insurance coverage is part of a funding source that already covers the association.
  • Regularly check insurance cover and policies to ensure that you are not under‑insured or over-insured.
  • Consolidate policies where possible – packaged insurance may be more cost effective than individual cover.
  • Undertake regular risk management to identify, assess and manage risks.
  • Ensure that all office bearers, committee members, management and staff are aware of their legal responsibilities.
  • Ensure that all officers, management and staff receive ongoing training on professional standards of conduct and occupational safety and health.
  • Ensure that relevant policies and procedures concerning risks (e.g. professional standards and health and safety) are developed, implemented and maintained.
  • Enhance security and fire safety mechanisms (e.g. locks, fire extinguishers, fire safes, sprinklers).