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As brokers are no doubt only too aware, the charity sector is not the only community finding it hard to get cover. Like the corporate sector, charities are facing rising costs and changing terms and conditions, particularly in the liability classes.

But the charity sector also faces its own unique challenges in the way in which the markets perceive certain risks. Care, particularly involving children, is seen as high-risk by the markets and is, therefore, facing limited capacity and higher premiums.

Contributing to these conditions is the fact that some insurers still believe charities do not maintain the high-risk management standards required in the corporate sector. Unless they are persuaded otherwise, insurers will remain wary of underwriting risks where voluntary staff are undertaking hazardous frontline work, particularly when they are exposed to third party liabilities.

Best practice

Encouragingly, legislation, regulation and EU directives are all driving best practice in the voluntary sector. The Statement of Recommended Practices now requires an annual statement from trustees about their risk management processes. While this is inevitably a burden for the sector, in both the short and long term it offers crucial enhanced credibility and efficiency, which should help charities get insurance.

Charities are facing greater competition for funds than ever before, just as demand for their services is increasing. While legislation has helped make the voluntary sector more transparent in terms of risk, insurers want to see charities do more than identify their risk areas. Charities must prove their increased commitment to risk management and business continuity through implementing a risk management action plan.

Many of the problems facing the sector could be cleared up through education and information-sharing. Insurers need to gain a full understanding of the charity sector but charities need to be more aware of the level of risk management detail underwriters require. Charities also need to be sure they have a clear and comprehensive picture of their own risks.

Accurate information

Brokers have a crucial role to play in bridging this gap. They must give insurers accurate information about the risk profiles of the charities they represent. This enables insurers to gain insight into the particular activities of a charity and its strategies for managing its risks efficiently.

Charities, likewise, should appreciate that insurers only want to write where they can see a clear culture of risk management and loss control, coupled with a sound business continuity plan.

Working with brokers, charities can take a number of measures to increase their chances of obtaining appropriate cover. Charities should plan well in advance for renewal so they can review terms and options and have time to identify the most effective solution. Working closely with insurers offers mutual understanding and ensures the provision of full information on risks.

However, the most important contribution that brokers can make is before insurers get involved. They must help clients put practical risk management techniques in place.

One approach to risk identification is to examine all possible risks that may adversely affect the charity's brand and mitigate these with a range of risk management and prevention strategies. A sound and tested business continuity plan is essential, including media control and public confidence maintenance.

Establishing a charity's risk profile involves input from many different people within the organisation, starting at the top with the trustees and chief executive and moving through the employee ranks, perhaps including volunteers. The aim should be to establish the organisation's attitude to those risks faced by its core and non-core activities, as well as generally identifying individual risks.

The next step is to analyse the impact that each risk may have in terms of severity and frequency. Techniques used to rank risk include assessment by group discussion, computer modelling and external specialist risk consultants.

The severity of risk can be measured in either financial or non-financial terms and charities need to consider the level of risk they can accept without a disproportionate effect on operations.

Controlling risks

Once the level of risk tolerance has been established, the list of identified risks can be benchmarked to this, helping to establish which risks need priority treatment. How to handle an identified risk depends on several factors, including what can be done to control the risk, how much it will it cost and how it ranks against other exposures.

Charities will need to transfer some risk. In some cases, for example a high-risk fund-raising initiative, it may be possible to transfer liability to the contractors involved. In other cases, charities will need to go to the insurance market, which is likely to be more receptive if risk management is evident. And brokers must understand the organisation's activities and approach to risk management if they are to present its case.

The UK economy needs a strong voluntary sector. Insurance brokers can play a key role in helping charities obtain the optimum risk solutions, establishing best practice and protecting their image and reputation.