Many types of social welfare organisation have been affected by the recent financial turmoil, from charities and not-for-profit to social enterprises. Charities have faced an increased demand for services whilst they struggle to cope with declining income streams.

To protect the services delivered to beneficiaries many charities are looking for ways to cut costs while also increasing fundraising activity to sustain cash flow.

The Charities Commission recently advised all organisations to take a serious look at their financial health, direction and use of resources. Their recent document 'The Big Board Talk: the conversation all charities need to have', highlights how restructuring can help by, among other things, increasing the pool of volunteers, re-negotiating and terminating contracts, changing the types of services offered to meet the new demand and making best use of property.

Whilst certainly helping charities to make improvements to the way they operate, these considerations have the potential to inadvertently introduce new risks.

The following claim was handled by Markel Insurance and demonstrates how difficulties can arise in an attempt to restructure to reduce overheads:

"A hostel promoted internally when a manager retired, thinking that the employee had the experience needed and it would save recruiting a replacement.  Unfortunately, the manager felt overburdened with work and rather than flag up issues, she allowed matters to get on top of her.  Absence followed with a sick note stating stress.  She requested a less onerous job with fewer hours or she would resign. There were no other positions available and the charity believed her to have resigned after her representative confirmed she had not changed her mind.  A claim for unfair dismissal and disability discrimination followed, alleging victimisation as working hours and duties were not adapted in light of her health issues.  Markel investigated and negotiated a financial settlement of £15,000".

One of the ways to address risks is to consult an insurance broker who can help to identify potential problems and can advise how to manage them appropriately.  Once the risk exposures have been identified the first step is to advise how these risks can be minimised and managed before recommending which risks should be covered by appropriate insurance. It’s not just about arranging an insurance policy.

The Charity Commission also lists issues charities should consider and review in the current economic climate, such as their obligations as employers, the financial and reputational risks of being unable to meet terms of a contract, reviewing their performance as a trustee body and safeguards against fraud.

Again this highlights risks which need to be managed and may require relevant insurance cover. Aside from Employers Liability and Motor Insurance, which are compulsory covers, the risks a charity chooses to actually insure is down to personal choice. However it is a decision that should be made with professional advice. All organisations will have some additional liability exposure. Unrecognised and ignored, these exposures could become very expensive and threaten the viability of the charity.

Insurers also use their expertise to recommend improvements to reduce risk.  Some provide access to specialist care consultancy services and risk surveyors. A few insurers align their whole business to social welfare to maximise expertise and service. Specialist products designed specifically for social welfare type organisations are available. Value added services, such as access to legal and public relations advice, are also included with some policies.  In the example above, the charity gained assistance from the insurer's employment helpline to ensure issues did not arise in future.

A quality broker and specialist insurer, both with insight of specific activities charities are involved with, will maintain a regular dialogue. Their advice and support will add value to the charity throughout the relationship; invaluable for charities in this difficult economic climate.

As published in the 'Insurance Confidence' supplement distributed by The Guardian Sept 2010.

Click here to view the original article as published in the 'Insurance Confidence' supplement distributed by The Guardian Sept 2010.