Mutual Goals? Driving Down the Total Cost of Risk?

The announcement issued by the Local Government Association’s (LGA) Chief Executive, Mark Lloyd, on 20 July that it has been exploring options to find a cheaper alternative to conventional insurance providers has once again stimulated the debate on the concept of a Local Authority Mutual.

Marsh has remained at the forefront of developing encouraging new capacity and risk transfer concepts for the public sector – we were the first broker to place a public sector risk with Protector in the Nordics and UK. We therefore welcome any new capacity to the market that will provide a wider choice for our clients and stimulate competition and innovation within the sector.

Experience over time has seen mutuals form as a response to limited capacity and choice for buyers of insurance; however, in recent years rates in the UK insurance market have remained soft with plentiful capacity. Within the Local Authority market, 2017 has seen more insurance carriers than at any time over the past five years. 

Many in the public sector and the wider insurance industry will be familiar with the mutual model and the history of various mutuals that have operated in the public sector and other segments. It remains too early to evaluate the concept referenced by the LGA; however, irrespective of the model that might be adopted, it remains likely that any mutual would be accessing the same reinsurance capacity available to current carriers.

Marsh is focused on supporting clients by designing the most efficient mechanisms to finance risks in the public sector, through robust tender and evaluations, underpinned by world leading analytic and modelling capabilities. We will support clients in assessing the relative risks and rewards in selecting a mutual as a viable and stable risk transfer financing option.

Overarching everything we do, we remain committed to helping local authorities and the public sector drive down costs and secure value for money by reducing the total cost of risk (TCOR) to release funds for front-line services. It is incumbent on other stakeholders to support this objective, for example, in the area of reducing or removing Insurance Premium Tax (currently 12%), which would clearly make a material change to TCOR for Local Government in a very short time frame with little or no complexity.

Please contact me if you would like to find out how Marsh can assist you in driving down your TCOR.