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RISK IN CONTEXT

Cost Reduction in Social Housing – Aiming Below the Line

Posted by Adrian Willmott 17 May 2016

It’s been well documented that the newly implemented rent cap on social housing is making many registered providers (RPs) revisit the assumptions made in their business plans. A recent procurement survey indicated that, as a result, RPs feel they need to target savings of between 10% and 15% to deal with the reduction in rent revenue they anticipate over the next few years.

For many RPs the cost of insurance is a significant item, and reducing this will be on the “to do” list for procurement teams as part of their efficiency agendas.  Typically, the objective will be to operate a competitive tender to reduce the cost of the insurance premiums. But before doing this, you should ask yourself the following questions:

1. If I am in the early stages of a term contract with my provider(s), how can I get reductions now?

2. Do I understand what the cost drivers of my insurance premiums are and do I know how to improve them?

In answer to the first question, many RPs have self-insured amounts for every claim (called a “policy excess”), which are typically set in the range of GBP5,000 or GBP10,000 for property losses. This cost is often not captured and, therefore, there can be significant leakage in not controlling this - and, in many cases, not even recovering it from negligent third parties.  How many GBP10,000 unbudgeted items are you happy to bear over a three-year period?

The second question has more moving parts, but when properly addressed can bring about a transformational result. One Midlands-based RP recently adopted an approach based on an understanding of the cost drivers of its insurance premiums and implemented a change management project that embedded clearly-defined ownership of claims events at housing officer level against regularly measured key performance indicators (KPIs). The result – based on unchanged stock size, values, and people – was that it moved its insurance premium from more than GBP3 million to GBP1 million.

By moving away from getting insurance suppliers to go head-to-head on thin margins, to taking a more long-term approach, there is potentially a bigger prize available than a simple reduction in headline contract value.

Related to:  Public Entity

Adrian Willmott