2. INSURANCE REVIEW PROCEDURE54
2.1. This procedure shall be used to determine whether the Authority shall bear any increase or benefit from any decrease in Relevant Insurance Costs.
2.2. The Contractor's insurance broker shall prepare a report on behalf of both the Contractor and the Authority (the "Joint Insurance Cost Report"). The Joint Insurance Cost Report is to be prepared at the Contractor's expense and should, as a minimum, contain the following information for the relevant Insurance Review Period:
2.2.1. A full breakdown of the Actual Relevant Insurance Cost;
2.2.2. A full breakdown of the Base Relevant Insurance Cost;
2.2.3. A spreadsheet (the "Insurance Summary Sheet") detailing separately:
(a) the sum(s) insured/limit of indemnity (i.e. rateable factor) for each of the Relevant Insurances;
(b) the premium rate for each of the Relevant Insurances;
(c) the net premium paid (or to be paid) for each of the Relevant Insurances (i.e. excluding both insurance premium tax and brokers fees and commissions);
(d) the deductible(s) for each Relevant Insurance;
(e) details of any claims (paid or reserved) (including incident date, type and quantum) in excess of £[ ],55 being the amount stated in Clause 55.9.
2.2.4. An assessment and quantification of each Project Insurance Change together with reasons therefore;
2.2.5. Full details of any Portfolio Cost Savings;
2.2.6. Any other reasons that the Contractor believes may have caused a change (by way of increase or decrease relative to the Base Relevant Insurance Costs) in the Actual Relevant Insurance Cost;
2.2.7. The opinion of the Contractor's insurance broker as to the reasons why the Actual Relevant Insurance Cost has varied from the Base Relevant Insurance Cost, specifying the impact of each of the factors and quantifying the amount attributable to each factor specified above. To the extent such information is available and having used all reasonable endeavours to obtain such information, the insurance broker's assessment should include:
(a) an assessment of the magnitude of, and reasons for, insurance rate movement generally prevailing in the Power and Engineering Insurance Market, including full details of the information underpinning the assessment. This should include:
(i) feedback received further to discussions with at least three lead underwriters at each insurance renewal or placement during the relevant Insurance Review Period;
(ii) premium rate change information broadly corresponding to the same period further to review of insurance cost data for a representative sample of Relevant Assets in various European Member States for which the Relevant Insurance has been renewed by the Contractor's insurance broker during the six (6) Months prior to the relevant Insurance Review Date;
(iii) all additional available evidence of any changes to circumstances generally prevailing in the Power and Engineering Insurance Market that are deemed to have contributed to any Insurance Cost Differential. This should include details of movements in any other index which both Parties agree is relevant to the Power and Engineering Market which is or becomes available.
(b) an assessment of the magnitude of, and reasons for insurance rate movements generally prevailing in the PFI Insurance Market, including all available evidence of changes to circumstances generally prevailing in the PFI Insurance Market that are deemed to have contributed to any Insurance Cost Differential. This should include details of movements in the CBS Private Capital non-marine index56, plus, if available from other appropriate sources, details of changes in insurance cost across the PFI market as a whole;57 and
(c) the calculation of the Insurance Cost Differential and any Exceptional Cost or Exceptional Saving arising from this calculation.
2.2.8. The Contractor shall, as soon as is reasonably practicable, notify the Authority if the Contractor's insurance broker is unable to obtain any of the information required under paragraph 2.2.7 this Part 5 (Insurance Premium Risk Sharing) of this Schedule 10 (Required Insurances). The Authority shall be entitled to provide the Contractor's insurance broker with any such information for inclusion in the Joint Insurance Cost Report and the Contractor shall reimburse the Authority's costs that have been reasonably and properly incurred in obtaining and providing such information.
2.3. The Contractor shall procure that the Broker, no later than the date which is twenty five (25) Business Days after the Insurance Review Date, delivers to the Authority at the same time as it delivers to the Contractor at least two copies of the Joint Insurance Cost Report. At the same time the Contractor should send a copy of its Insurance Summary Sheet to HM Treasury private finance unit or its nominee. Following receipt of the Joint Insurance Cost Report the Authority shall notify the Contractor in writing within twenty five (25) Business Days whether or not it accepts the Joint Insurance Cost Report including full details of any disagreement.58 If the Authority does not provide such notification and/or details of any disagreement to the Contractor within twenty five (25) Business Days, the Authority shall be deemed to have accepted the Joint Insurance Cost Report.59 If the Authority disagrees with any item in the Joint Insurance Cost Report, the Parties shall use their respective reasonable endeavours acting in good faith to agree the contents of the Joint Insurance Cost Report. If the Parties fail to agree the contents of the Joint Insurance Cost Report within forty five (45) Business Days from the date it was delivered to the Authority, the matter shall be resolved in accordance with Schedule 22 (Dispute Resolution Procedure), provided always that references in Schedule 22 (Dispute Resolution Procedure) to an expert shall be construed as references to an independent insurance expert agreed by the Parties or, in the absence of agreement, appointed by the President for the time being of the Chartered Institute of Arbitrators.
2.4. The Authority may make the Joint Insurance Cost Report available to any of its or HM Treasury's agents or advisers or other bodies nominated by HM Treasury for insurance cost verification, benchmarking or similar purpose.
__________________________________________________________________________________________________
54 The insurance review procedure takes place around each Insurance Review Date. The cost of insurance for the previous year and the cost of insurance for the current year are assessed at each review. With the exception of the first review, which takes place one day after the first insurance renewal, and possibly, depending on the Contract Period, the last review, all other reviews will take place biennially.
55 This amount should correspond to the amount agreed under Clause 55.9.
56 CBS Private Capital (CBSPC) is a Lloyd's members' agent, specialising in the provision of advisory and administrative services to private and corporate capital providers underwriting in the Lloyd's insurance market. CBSPC uses syndicate analysts to undertake market research and, as part of its activities, maintains an index of insurance cost changes across the main asset classes. The CBSPC Market Rate Index was the first index of its kind, specifically focusing on the Lloyd's insurance market. It was started in 1994 and tracks the rate movements in the four main Lloyd's markets. The index was re-launched in 2005 when it was rebased to 1997, enabling investors to gauge where they are in the insurance cycle. The CBSPC non marine index may be accessed at: http://www.cbs-lloyds.co.uk/cgi-bin/mri/FileReader.pl
57 A source for such data could be nominated by HMT to act as custodian of the Insurance Summary Sheets.
58 The Authority should consider employing the services of a fully 'independent insurance advisor to confirm the accuracy of the information in the Joint Insurance Cost Report.
59 This may involve observing how insurance costs have changed during the same period across a representative sample of PFI projects from all of the PFI sectors. Such information is likely to be available from a number of sources. The collation of Insurance summary Sheets centrally should facilitate this exercise.