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The challenge for local authorities to obtain insurance
More and more local authorities are finding it increasingly difficult to insure themselves, and the observation that there is a shortage of competition is shared by all players. While this problem, linked to the scarcity of players and their lack of appetite for these risks, is not new, the increase in climatic and social phenomena is transforming this difficulty into a real crisis. Faced with the shared concerns of local authorities, the public authorities have taken up this issue to identify a number of avenues to explore. At the end of October 2023, the French Minister of the Economy announced the creation of a working group dedicated to the insurability of local authorities. Secondly, the Senate Finance Committee has launched a fact-finding mission dedicated to the insurance problems faced by local authorities.
There is unanimous agreement that local authorities are hampered by public procurement rules when it comes to awarding insurance contracts. The classic call for tenders procedure locks local authorities and insurers into an overly restrictive formalism. This systematic use of calls for tender, which prevents any negotiation, explains the market’s low attractiveness and exposes local authorities to unsuccessful calls for tender. However, reducing this problem to the mere inadequacy of public procurement rules to the specificities of the insurance market is unsatisfactory.
On the one hand, many public procurement tools already exist and could be used by local authorities. These tools are of two kinds: (i) classically and principally, public contracts for insurance services, the awarding of which is governed by other procedures, and (ii) secondarily, the use of global contracts characterized by the transfer of project management to the private sector, involving the provision of project insurance by the private sector. On the other hand, local authorities may have inappropriate procurement practices. In this case, the aim is to support local authorities in their knowledge of public contracts.
Making the most of exceptional procedures
Rethinking the traditional tendering procedure is not enough. Other procedures more suited to the specific insurance needs of local authorities need to be considered. Firstly, the negotiated procedure enables insurers to be contacted directly and offers to be optimized by professionals in the sector, by negotiating the terms of the contract with one or more economic operators. Negotiation is possible when the need cannot be met without adapting immediately available solutions, in cases of particular complexity, or when only irregular or unacceptable bids have been submitted (article R. 2124-3 of the French Public Procurement Code).
Secondly, the competitive dialogue procedure (article L.2124 of the French Public Procurement Code) enables the purchaser to enter into dialogue with candidates with a view to defining or developing solutions to meet its needs. This procedure is particularly suitable when local authorities need to call on candidates to identify the best solution. It should be noted that the cases in which the competitive dialogue procedure can be used are the same as those for the negotiated procedure (article R.2124-5 of the French Public Procurement Code).
As the report by the French Senate’s Finance Committee points out: “The procedure with negotiation therefore consists in improving a bid, whereas competitive dialogue consists in defining a technical solution based on a need defined less precisely, by means of a simple detailed functional program, or in an incomplete manner”.
Transferring project ownership
It’s also worth pointing out that there is another option, rarely identified for its insurance value, namely the use of a global contract with the transfer of project management to the private sector. In fact, concession or partnership contracts, by transferring project management, enable the corresponding transfer of insurance risk to the local authority’s co-contractors. The costs associated with setting up insurance policies are then borne by the contract holder, a private project owner able to access the insurance conditions offered to the private sector. This contractual formula is intended for use in the construction or renovation of structures/buildings, where the private co-contractor will be responsible for mapping the risks likely to require insurance cover, and for bearing the full cost of insurance in the event of disruption or claims.
Rethinking tendering procedures
Due to a lack of information and fear of recourse, a culture of inviting tenders, without negotiation, has taken root in local authorities. However, this systematic use of the tender procedure has now shown its limits, and needs to be rethought in order to make the best use of it. Purchasers can resort to sourcing, which enables them to sound out the market on their needs and the ways in which they can be met, in order to ensure that they are in line with existing market possibilities and practices.
Purchasers can also make full use of the flexibility offered by the French Public Procurement Code: formulating technical specifications and performance conditions in sufficiently open terms, asking candidates to specify or add to the content of their bids, allotting contracts u identifying criteria for judging bids that are sufficiently adapted to avoid the pitfall of the “lowest bidder”.
Local authorities also need to improve their risk assessment skills, so as to gain a better understanding of the assets they need to insure, and renew their dialogue with insurers.