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Mutual – First

By April 25, 2019 No Comments

As the Local Government Mutual prepares to launch an alternative to  traditional insurance products and services for councils, we take a closer look at what it will have to offer

Brian Roberts and Ian Rogers are Directors of the Local Government Mutual

Local government is always looking for new and innovative ways to harness the considerable collective purchasing power of councils to help reduce costs and improve services.  The Local Government Mutual, aims to do just that.

Owned and operated for the benefit of its members, its aim is to offer councils a cost-effective alternative to traditional insurance services and products.  As a mutual, any future trading surpluses which may be achieved may be returned to members, or reinvested in the Mutual to further develop its products, or used as the members agree. .

So how does it work?  

In its initial stage the Mutual will not retain risk; insurance will be provided by OJEU procured insurers. The Mutual will begin offering protection itself as soon as it is prudent to do so.

The Local Government Mutual is owned by and operated for the benefit of its members.  It does not have shareholders expecting a return on their investment. In the case of the Local Government Mutual, 14 councils along with the Local Government Association (LGA) have joined together to establish the new Mutual.  It will draw on best practice from other mutuals to offer a cost-effective alternative to traditional insurance products and services, using local government capabilities and resources to manage risk more effectively and, where possible, reduce the cost of risk.  At the same time, it will continue to work with the insurance market to procure cost-effective risk transfer for large losses.

There are several benefits to being a member of the Mutual. For a start, each local authority member will contribute to the Mutual based on the risks they have covered. A fair price will be charged and each members contributions are set individually.   Being a mutual also means that members can shape the kind of products and information they want. For example, in discussions with the founding member councils and local government more widely, it has become clear that many are currently tied into long term insurance deals and some would prefer annual cover. So more flexibility is something that the Mutual is looking to build into the offer.

The Mutual aims to cover all ‘expected’ risks – the routine, day-to-day claims.  The Mutual’s analysis of councils’ claims histories suggests that ‘expected’ claims are generally stable and predictable over time.  Those risks will be “retained” by the Mutual and covered by members’ contributions. The more members the Mutual has, the more risk will be able to be retained and covered directly by contributions.

For larger claims, the amount of a claim above the Mutual’s retention will be covered by carefully specified, jointly procured insurance to cap the Mutual’s and members’ financial exposure.

Over time, any trading surpluses achieved by the Mutual may be returned to its members, or used for the benefit of members as they agree. However, the aim is not to generate excess surpluses but to keep member contributions low by carefully matching them to the  risks the member brings into the Mutual. .

Joining the Mutual is a relatively simple process.  Currently, if councils want a new insurance supplier or want to renew their insurance they have to go through an OJEU tender, a process councils often describe as lengthy and complicated.  The Mutual meets the requirements of the “Teckal” exemption in the Public Contracts Regulations 2015, so a separate OJEU process is not required to become a member. The Mutual carries out an OJEU compliant procurement of supporting insurance for itself and its members.

As it develops the Mutual will also enhance the management information provided to councils.  Councils will be able to access comprehensive information about their claims history so they will be able to see what the claims are and their status. They will also have the opportunity to dispute any claims, and to handle their own retained claims.  Building on this transparency, the Mutual will also aim to use this information to work with its members to reduce their risks over time by reviewing losses across the membership base and the wider public sector. The Mutual will work with its members to reduce incidents leading to claims and the level of losses from claims and therefore, over time, the cost of cover is likely to be reduced.  Other mutuals have a good track record in this respect – see below/right for an example of another successful mutual.

More than anything, this is a Mutual by local government, for local government.

The Mutual will be holding an information day on 4th June at Smith Square.

You can also visit the Local Government Mutual stand at the LGA conference in Bournemouth from 2-4 July