Mutual launches to compete in insurance market
0A group of councils has joined the Local Government Association (LGA) in launching a new mutual aimed at offering a better deal for councils on insurance.
The mutual will see council pool funds to help local authority members “retain” risk instead of buying insurance on the open market.
Ian Rogers, director of the new mutual, said: “Over time the mutual offers a sustainable alternative to insurance that is value for money based on true cost of risk.
“It’s about bringing value for members, it’s about improving their risks and not about making profits.”
The mutual is yet to sign up its first paying members but is in talks with a number of councils, Rogers said.
Councils who become members will be expected to make “contributions”, or premiums, to create a pool from which claims can be made.
The mutual also aims to provide the opportunity to share best practice in risk management.
Contributions will also go towards buying reinsurance from a panel of providers chosen through a “dynamic” purchasing system.
Cover provided by the mutual will include construction, damage to machinery and computer equipment, liability, property and fleet.
Other advantages claimed by the mutual include complete transparency of finances for members and the potential for retaining surpluses.
Jon Taylor, mutual manager for LGM Management Services — the mutual’s management company — said surpluses had to be used for the benefit of the membership as a whole.
“The usual uses would be to place some money into reserves. If the mutual were to have less than average years, reserves might be desirable.
“There is the prospect too of a distribution to members.
“Or, it could be used to reduce future contributions or, as quite often happens, it can be used for things like risk management initiatives, which could come in many forms.
“It’s the members who decide how the surplus is used.”
Andrew Jepp, managing director at Zurich Municipal, a major provider of insurance to local authorities, is concerned whether the mutual is willing “to participate in tenders to allow local authorities to compare properly the value of what is a long-term and complex purchase.”
Jepp emphasised that the range of risks faced by local government is complex, ranging from safeguarding claims, personal injury, and potential property losses involving schools, housing and buildings of historic significance.
“What is vital is the experience of and capability of the insurer to manage these types of losses to minimise the impact on local authorities and the communities they serve,” said Jepp. “It is also worth noting that local authorities already fund a significant proportion of claims themselves to maximise the efficiency of their insurance arrangements.”
In 2018 the public sector insurance market was worth £695m, according to Tussell, the data researchers. Almost four fifths of that went to the top ten suppliers. The top buyer of insurance was Northern Housing Consortium, with £181m in contracts followed by three London boroughs: Lewisham, £90m; Croydon, £60m; Bexley, £19m. Top providers include Marsh, £187m and Zurich, £153m.
“This [the mutual] is about having more competition in the market,” said Rogers. He added that councils would still be able to compare costs though they may not go out to tender if their needs were covered by the mutual.
The LG Mutual examined several other mutuals that have so far proved successful, including The Fire & Rescue Indemnity Company and the Risk Protection Arrangement set up by central government for academy schools.
It also looked at the Activities Industry Mutual, a body providing insurance for the outdoor activities sector. The body now has 800 members and a 40% market share.
Founding councils include Trafford, Enfield, Hart, Gedling, Broadland, Bury, Charnwood, Crawley, East Herts, Milton Keynes, South Keveston, Nuneaton and Bedworth, Barnsley and Suffolk.
