Author: Tilden Watson
Under the new Local Government Reorganisation (LGR) programme, the current two-tier structure will be replaced by a single-tier unitary authority by 2028. This will result in the division of county areas, as well as the consolidation of district, borough and city areas. This is perhaps the largest wave of local authority reorganisation since the 1990s and is expected to affect an estimated 20 million people in England.1 The reform is intended to streamline services, reduce duplication and create a more responsive local government.
LGR presents significant opportunities for efficiency, both in cost and operations. Yet it also places considerable financial strain on councils, amid rising service demand and exposure to claims. These challenges underscore the importance of proactive risk management, particularly those associated with council contracts and insurance. Failing to address these critical legacy risk factors may undermine the intended objective of this restructuring.
Strategic risk management: Why contract insurance matters
Leaders are required to proactively address the LGR transition, ensuring smooth operations. To support this, it is critical to review and understand the insurance positions embedded within contracts. This helps ensure appropriate liability coverage and the effective transfer of liabilities to the new council. A structured review of contract insurance provides councils with clarity on their exposures and obligations.
Ignoring this may result in councils inheriting uninsured or underinsured exposures, unclear or unintended liabilities, claim complications, operational disruptions and uninsured losses. There may also be long-tail liabilities that can lead to extended disputes and financial burdens if responsibility is unclear or contested. Collectively, these factors can have a significant financial impact on the council.
Even though integrating insurance and risk programmes across merging entities can be complex, planning ahead can help optimise risk transfer, while maintaining financial resilience. A proactive approach ensures operational continuity amid reorganisation. It also reduces the risk of costly surprises, such as budgetary pressures or legal disputes.
Steering the transition: Practical considerations for contract insurance
During any transformation or merger, a strategic approach helps to address risks, challenges and opportunities. Within this approach, leaders can look to focus on the following considerations:
Contract review
The new or continuing council will be required to draw up a plan that ensures contracts are in place by vesting day in order to shape future decision-making. To do this, essential information will include:
- Scope of the contract
- Financial implications
- Information regarding outstanding claims or disputes
- Contracts with an option to extend before the vesting date
- Contracts due for re-procurement before the vesting date
- What the contract says about the change of identity of the contracting council
- Any variation required in the contract to make it work post vesting day
Reviewing contract insurance
Councils must take a structured approach to insurance mapping, by undertaking the following actions:
- Investigate, review and record insurance arrangements included in contracts.
- Provide comments or summaries on the scope and levels of risk transfer to insurance.
- Identify contracts that have insurance deficiencies, issues or material risks to the council.
- Assess how the contracts protect the council's separate interests.
- Determine whether the scope and level of insurance are likely to be adequate to protect the new council relative to the requirements.
- Examine the interface between contractual insurance requirements, drafting and insurance arrangements of various councils.
- Evaluate whether the new council is able to meet insuring obligations set out in the contract.
- Conduct insurance due diligence on any new contracts prior to the vesting date.
- Review the approach to insurance in contracts set out in any council template contracts and user guides, with attention to risk.
In addition to the above, data and auditing are also key factors to evaluate. High-quality data is essential for understanding the risk profiles of existing councils and how these differences may influence the new entity. To enable this, councils can look to conduct rigorous audits and systematic data collection to support effective contract management.
Contractual insurance coverage: A case for mapping guidance
How Gallagher can help: Supporting councils during LGR
Every governance transition approach carries consequences. Without a clear and evidenced allocation of liabilities, supported by appropriate insurance arrangements, newly formed councils may find themselves assuming risks they neither anticipated nor accounted for.
However, by taking a structured approach to liabilities and insurance positions in contracts now, councils can approach the upcoming changes with confidence. Gallagher is ready to support councils navigating this journey by leveraging a contract insurance matrix. We can provide a clear framework to map and manage insurance responsibilities effectively:
- Identify potential pitfalls and best practices.
- Help in efficient and economical contractual transfer of insurable risk.
- Highlight the protection of councils' separate insurable interests.
- Ensure compliance with relevant public sector guidance and best practices.
Contact one of our risk advisers or reach out to Tilden Watson directly, to understand more about how Gallagher can support your organisation during the LGR.
