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Enhancing financial preparedness: The importance of fund reviews for local councils

Public funds management is a vital responsibility of local council leaders within the UK.

17/12/2024 · 4 minute read

Public funds management is a vital responsibility of local council leaders within the UK. As potential liabilities accrue over time, councils must quantify their risks and ensure they possess appropriate amounts of capital to fund possible claims. Fund reviews are a useful option for local councils examining their financial stability and resilience toward potential liabilities.

Assessing potential liabilities

Various fiscal obligations for local councils and authorities include funding educational institutions, maintaining required facilities for vulnerable individuals, and ensuring the overall safety of the population within their jurisdiction. Therefore, to ensure essential local services are uninterrupted, the need for effective financial management is paramount.

Often, councils will allocate funds to self-insure liabilities where potential claims could fall below the deductibles of insurance policies in place. These funds act as a financial safety net against unforeseen liability claims, such as an accident in a school playground or property damage due to adverse weather conditions.  

Due to their inherent uncertainty, careful consideration is required when setting reserves for self-insured liabilities. To navigate this, a tailored approach to reserve management is crucial — taking into account each council's desired level of risk exposure.

What is a fund review?

It is important for councils to obtain an in-depth assessment, such as a fund review, of their self-insured liabilities. This will provide critical insights into how liabilities may materialise over the coming 12-months — enabling councils to make well-informed decisions to achieve appropriate funds management and alignment with their risk appetite.

A fund review involves a rigorous actuarial examination of a council's funds — posing the following questions to local council leaders:

  • Are past liabilities sufficiently accounted for? 
    Reviews will analyse historical claims data and risk profiles to determine if current provisions are sufficient.
  • Have adequate reserves been allocated to mitigate potential risk? 
    Local councils can use actuarial estimates to quantify any risks and uncertainty surrounding their allocated funds. Fund reviews will also provide a probability of allocated funds being exceeded. Councils can use this information to help establish levels of reserves appropriate for their risk appetite. 
  • What would future outflow look like? 
    Reviews can also produce insights into the expected claims outflow for the forthcoming years.

Requirements for a comprehensive fund review

When selecting an organisation to carry out a fund review, it is essential for local councils to select a provider that possesses sufficient experience, expertise, and data to support accurate assessments of self-insured liabilities. 

To gain confidence in a fund review, it is important to choose an organisation with: 

  • Experience 
    Selecting a provider with experience in conducting fund reviews can help ensure councils receive a thorough and suitable assessment of their reserves. 
  • Data accessibility
    For an appropriate fund review, loss data is critical. Organisations with access to large volumes of public sector claims data can provide context and benchmark insights for the risk landscape relevant to each local authority.
  • Transparency 
    Local councils should seek a partner that prioritises transparency and open communication. This will ensure that council leaders are kept informed throughout the process. Building trust with clients is crucial, and dialogue throughout the project helps produce accurate and actionable results.

Next steps

In the dynamic landscape of local governance, the importance of fund reviews cannot be overstated. It is essential that councils ensure they are suitably prepared for any potential liabilities. 

Marsh Analytics, a specialist in conducting fund reviews, can empower councils with vital insights and guidance to help navigate financial uncertainties. Our dedicated team of specialists commands vast experience within local government financial management — maintaining an unwavering commitment to help optimise your fiscal resilience.

For further discussion on carrying out fund reviews and other effective financial management strategies, please reach out to your Marsh Analytics contact. 

Our people

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Harry Hoare

Analytics Development Executive

  • United Kingdom

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Arjun Vyas

Senior Specialist – Actuarial

  • India

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