2 Insurance Review Procedure35

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 Service Provider's insurance broker shall prepare a report on behalf of both the Service Provider and the Authority (the Joint Insurance Cost Report). The Joint Insurance Cost Report is to be prepared at the Service Provider's expense, and should, as a minimum, contain the following information for the relevant Insurance Review Period:

(a) a full breakdown of the Actual Relevant Insurance Cost;

(b) a full breakdown of the Base Relevant Insurance Cost;

(i) the sum(s) insured/limit of indemnity (i.e. rateable factor) for each of the Relevant Insurances;

(ii) the premium rate for each of the Relevant Insurances;

(iii) 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);

(iv) the deductible(s) for each Relevant Insurance;

(v) details of any claims (paid or reserved) (including incident date, type and quantum) in excess of £(♦), being the amount stated in clause 40.7 (Notification of Claims);

(d) An assessment and quantification of each Project Insurance Change together with the reasons therefore;

(e) Full details of any Portfolio Cost Saving;

(f) Any other reasons that the Service Provider 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;

(g) The opinion of the Service Provider'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;

(h) The calculation of the Insurance Cost Differential and any Exceptional Cost or Exceptional Saving arising from this calculation;

(i) Evidence satisfactory to the Authority (acting reasonably) of any changes to circumstances generally prevailing in the Relevant Insurance Market that are claimed to account for the Insurance Cost Differential; and

(j) Details of movements in the CBS Private Capital non marine index36 plus, if available from other appropriate sources, details of changes in insurance cost across the PFI market as a whole.37

2.3 It is agreed that:

(a) the Service Provider shall procure that the Service Provider's insurance broker, no later than the date which is ten (10) Business Days after the Insurance Review Date, delivers to the Authority, at the same time as it delivers to the Service Provider, at least two (2) copies of the Joint Insurance Cost Report;

(b) at the same time the Service Provider should send a copy of the Insurance Summary Sheet to HM Treasury private finance unit or its nominee;

(c) following receipt of the Joint Insurance Cost Report, the Authority shall notify the Service Provider in writing within fifteen (15) Business Days whether or not it accepts the Joint Insurance Cost Report including full details of any disagreement38;

(d) if the Authority does not provide such notification and/or details of any disagreement to the Service Provider within fifteen (15) Business Days, the Authority shall be deemed to have accepted the Joint Insurance Cost Report;

(e) 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 Report39;

(f) if the parties fail to agree the contents of the Joint Insurance Cost Report within thirty five (35) Business Days from the date it was delivered to the Authority, the matter shall be resolved pursuant to the Dispute Resolution Procedure, provided always that all references 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 body or bodies nominated by HM Treasury for insurance cost verification, benchmarking or similar purpose.

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35 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.

36 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 via the following web address:-www.cbs-lloyds.co.uk/cgi-bin/mri/FileReader.pl

37 A source for such data could be Partnerships UK or any other body nominated by HM Treasury to act as custodian of the Insurance Summary Sheets.

38 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.

39 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.