Councils combine to establish mutual insurance company
0Almost 20 councils have joined as founder members of a mutual insurance vehicle, which was incorporated as a limited company this week.
The mutual, LGAM, is aimed at saving significant costs for local authorities, which currently collectively pay £650m a year in premiums.
The 17 founding members will join the new venture over the coming weeks and months as current contracts expire, according the Local Government Association, which will also be a member.
A statement from the LGA said: “The LGA is working with a group of councils to form a new mutual that will offer an alternative to the existing insurance market for local authorities, enhancing choice and promoting the sharing of best practice in risk management.”
The councils so far named as members of the scheme are Charnwood, Bedford, Hart, Enfield and Milton Keynes.
Gedling Borough Council and the other authorities are subject to formal approval and currently working through their own decision making processes.
The next steps, according to the LGA, will be to procure support services to enable LGAM to develop its business case and operating model.
The aim of the venture is to create more efficient management and sharing of best practice between members to realise cost savings.
The LGA said that the vehicle would reduce members’ risk exposure without increasing costs.
It added the mutual could build up a financial surplus that might be taken back as income or used to reduce the cost of protection.
Founding members will each send a senior elected member to join the mutual’s board and will be involved in the creation of governance and management arrangements.
Rod Penman, head of public services at insurer Zurich Municipal, said: “The local government insurance market is a well-developed and competitive market that copes with complex, volatile risks in a dynamic and changing sector.
“Any new entrant will offer further choice but it is important they demonstrate value through participating in the usual procurement process required of local authorities.
“The scale and complexity of claims that occur illustrate the importance of the quality of response to support local authorities at the point of greatest need.
“This is not a simple market and headline price should never be the primary focus in purchasing insurance protection.”
The LGAM model has been inspired by the Fire & Rescue Indemnity Company, which saw nine fire authorities launch a mutual in 2015.
After only one year of trading the members of the mutual achieved a surplus of £471,000, 12.5% of their contributions (£471,428).
LGAM is not the first attempt by local government to create a mutual insurance company.
The Municipal Mutual Insurance company, founded in 1903, was responsible for insuring most local public sector bodies until 1992, when it went into insolvency following substantial losses.
Many former members are still paying a levy to repay those losses.
A subsequent venture, the London Authorities Mutual Limited became a dead duck after an Appeal Court ruling found that it had been constituted unlawfully.
