Health minister Alan Milburn has proposed a pooled insurance scheme for trusts, but some argue it's a risky game. Seamus Ward reports

The introverted world of insurance is an unlikely battleground for the ideological war against the NHS internal market. But health minister Alan Milburn has opened up this new front nonetheless.

At the end of last month, he announced plans to force English trusts to set up a risk-pooling scheme to insure against non-clinical risks such as back injuries and building subsidence.

The proposal is 'one more nail in the coffin of the expensive and discredited NHS internal market', he says, not to mention the possible 45m that could be directed into patient care rather than insurance companies' pockets.

But the insurance industry says pooled insurance schemes only store up problems. A similar fund for solicitors has a shortfall of around 450m. So who is right?

Pools are a self-help funding mechanism. Members pay an annual premium based on their claims history, their accident prevention schemes and the likely amount of cash the pool will pay out over the coming 12 months.

In the early years there are few claims, so premiums tend to be low. Insurers estimate that only 3 per cent of the final amount of the claim is paid out in the first year. But as time goes on, claims rise and premiums increase so that the pool can cover the settlements.

NHS managers are split over the proposal. The Healthcare Financial Management Association is worried that in order to save 45m now, the health service could be open to huge claims in future years. 'It is important that the NHS financial position will be secure,' it says. 'If little amounts are paid now, the NHS could be hit with big bills later. The new system needs to ensure it collects sufficient premiums. As accountants, we wish to ensure there is sufficient provision for future liabilities.'

Helen Chalmers, finance and business planning director at London Ambulance Service trust and HFMA treasurer, says the changes are a headache the NHS does not need while it is implementing structural change.

'There are things that can wait and I think this is one,' she says.

'Three years into having commercial insurance, we are starting to see our accident rate drop. The discipline of risk managers, brokers and insurers has forced us to do that.'

Commercial insurance saved her trust around 300,000 over recent years, she says.

Ms Chalmers believes the NHS could benefit from pooling arrangements for a limited number of low-probability, high-cost risks, such as interruption to business. But she adds: 'This trust would be adamant that it should retain commercial insurance for vehicles, as a minimum.'

But Tom Jones, the Association of Certified Chartered Accountants' health service spokesman and a former director of finance and information at Herefordshire health authority, believes the proposed arrangements will be cheaper. 'The NHS has a good track record of managing its own risk. It is a model for the whole public sector.'

He dismisses warnings that pooling will lead to huge bills in later years and says this is a matter for management, not an argument against pooling.

'The agency controlling the pooling will have to ensure that prices reflect the risks,' he says.

If the NHS can continue to improve its management of non-clinical risk and the pooled scheme is well funded, it may save a small amount of money.

But if it is not, well managed trusts could find themselves with a hefty bill.

The case against

The Solicitors' Indemnity Fund is the most commonly cited example by those who oppose pooling insurance. It was set up about 10 years ago by the Law Society.

The fund faces a shortfall of around 450m, largely because of heavy claims following the collapse of the housing market in the late 1980s. The law firms became the insurers of last resort - liable to pay up when claims exceeded the premiums collected.

The Law Society is now consulting solicitors on the fund's future, and pressure is growing for lawyers to be allowed to obtain their insurance in the open market.

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The successful scheme

Many councils have joined a pooling scheme to insure against the costs of terrorist attacks. The Pool Reinsurance Company ensures that if a member makes a claim greater than their premium, the shortfall will be made up by the insurance companies up to an agreed limit. If the claim still exceeds this total, the government will pay the remainder.

Pool Reinsurance is viewed as a success, but this could be down to the limited IRA campaign since 1993, tighter security and high initial premiums. But even members of a successful scheme need deep pockets. When the IRA bombed London Docklands in 1996, it is believed members had to find an additional 190m.