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, it aims to offer councils a cost-effective alternative to traditional insurance services and products.
“The more members the Mutual has, the more risk will be able to be retained and covered directly by contributions
As a mutual, any future trading surpluses that may be achieved may be returned to members, or re-invested in the Mutual to further develop its products, or used as the members agree.
So how does it work? The Local Government Mutual is owned by, and operated for the benefit of, its members. Established by 14 councils working with the LGA, it does not have shareholders expecting a return on their investment.
Facts on the Local Government Mutual
- The Local Government Mutual is a company owned by its members – its customers.
- It acts solely for the benefit of its members at all times.
- The Board is drawn from the membership.
- Members pay contributions into the mutual fund based on the risks they bring.
- Contributions are used to pay the expected (predictable) claims, to purchase insurance that protects the mutual and its members against unexpected claims, and for operating costs.
- Any mutual trading surplus belongs to the members and must be used for their benefit or as the members may agree.
The Mutual 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 member’s contribution is 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 the Mutual is looking to build into the offer.
The Mutual aims to cover all ‘expected’ risks – the routine, day-to-day claims. Its 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 and rarer 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. They will be able to access comprehensive information about their claims history, and so be able to see what the claims are and their status. Councils 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 – so, over time, the cost of cover is likely to be reduced. Other mutuals have a good track record in this respect (see below, ‘Outdoor activities’, for an example of another successful mutual).
More than anything, this is a Mutual by local government, for local government, and it is now open to all LGA member councils. As we are owned and controlled by our members, everything we do is for their benefit and interest, and our goal is to provide value for money.
If you like the sound of that, please visit our website – www.lgmutual.co.uk – to book an appointment.
The Activities Industry Mutual (AIM) first opened its doors in 2007, to provide specialist liability cover for the outdoor activities sector. It has grown to become one of the market-leading providers in the sector, with more than 800 members.
Owned by its members, it gives cover for organisations and individual activities, ranging from water sports and cycling to climbing and coasteering.
By listening to its members, AIM has been able to develop additional services for them – including tailored and flexible payment plans, and motor cover for vehicles (including minibuses, tractors, trailers, vans – and even a Tesla).
Crisis management is another key area for AIM members, and the mutual has partnered with Pharos Response to offer 24/7 crisis containment advice, as well as counselling.