A number of councils have expressed interest in joining a proposed new mutual which could save tens of millions of pounds on their current insurance costs.
The Local Government Association (LGA) this week announced that it is exploring options to set up the vehicle, with the aim of launching by April 2018.
Room151 understands that the aim would be to reduce costs by building a team of local government claims handlers and reducing insurance premium tax payments made by councils insuring on the open market.
LGA chairman Lord Porter, said: “Councils spend hundreds of millions of pounds on insurance nationally. They also routinely work together to share best practice and support each other to improve, but currently are limited in doing this by understandable confidentiality around insurance contracts.
“Mutuals are long-established and trusted. A local government mutual would save councils money and give members the chance to control and manage their risks, claims and cover more effectively.”
The level of savings achieved will depend on the number and type of councils who join, how well they manage their risks and what they currently pay.
But extrapolating savings on insurance premium and corporation taxes mean that savings could potentially reach tens of millions.
Porter said that a large number of councils have expressed an interest in the scheme, but added that it would need a number to come together as founding members.
Those behind the scheme are keen to stress that the model is different from the Municipal Mutual Insurance scheme for councils which went into run-off in 1992 after suffering substantial losses.
The new model would effectively create two sources of cover—a mutual fund from which claims could be paid from, up to an excess level yet to be decided; this fund would not be liable for insurance premium tax.
Claims above this level would be covered by the second source: insurance policies bought from the market. Authorities joining the scheme would pay different contributions depending on their level of risk.
Room151 understands that the initiative has been fuelled by current high excess levels which mean councils are paying high premiums, but put off claiming.
Sources also say that the scheme would allow councils to respond more sensitively to situations which could result in a claim.
Some councils are frustrated that they are unable to admit failings due to advice from their insurance companies that to do so would be an admission of liability.
Those behind the scheme believe that they are unlikely to face the same problems in launching as the Muncipal Bonds Agency, which has yet to launch its first mutual bond.
Nationally councils currently spend more than £650m a year on insurance ranging from property damage and fleet cover to employers’ liability and protection against cyber-attacks.
Founding members would not need to change their insurance arrangements. They would also need to provide an elected member to join the mutual’s board and help establish its governance and management arrangements and oversee its launch, the LGA said.
