“I think all over the world we’re seeing the same response to systemic issues,” said Melina Morrison (pictured above), CEO of the Business Council of Co-operatives and Mutuals (BCCM).
Morrison was explaining how businesses and organisations worldwide are facing similar insurance and risk management challenges. Some of them, she said, are seeking alternatives to traditional insurance to deal with these risks, including alternative risk transfer (ART). Morrison said this is creating opportunities for mutuals in Australia.
“The hardening of insurance markets means that people actually have to innovate and look for other solutions,” she said. “Mutuals - and we have a particular type of mutual in Australia called a discretionary mutual fund (DMF) – are a potential solution.”
The BCCM represents both mutual insurers and discretionary mutuals.
“A number of universities and other educational or research institutions are insured through a mutual called Unimutual,” said Morrison. “That’s a great example of where there’s now a pendulum swinging back to the mutual.”
She said Unimutual has “deep knowledge” of the risk management challenges facing universities.
“They have literally built their products around what it is that universities need to protect, which is distinct to the university sector,” said Morrison.
One example, explained at the recent International Cooperative and Mutual Insurance Federation (ICMIF) seminar in Sydney, she said, involved laboratory rats.
“A great example was given for research IP [intellectual property], such as a lab full of rats,” said Morrison. “That’s very specific and if that’s catastrophically impacted in an event, the loss of the IP and the valuing of that is something that’s really unique intellectual capital.”
She said mutuals are very well suited to offering this “deep and very nuanced and bespoke cover.”
Some risk vulnerabilities driving ART options in Australia, she said, were revealed by the recent COVID-19 pandemic.
“The COVID-19 pandemic created a lot of supply chain vulnerability, here and around the world,” she said. “For example, primary producers, more and more, are looking to transfer risk from the farm gate through mutual entities so that they can not only own their supply chain, but they can also own their risk protection supply chain,” she said.
Mutuals, said Morrison, work well in these systemically large and broad sectors “because the membership is already built around the identification that that is a sector.”
Climate change, said Morrison, is also driving communities and local government to work more in partnership with the private sector, “which could be the mutual sector,” she said.
“Mutualising,” she said, could be a way of providing some risk protection that allows these groups to keep operating.
Morrison said these sorts of protections could help cover the liabilities of a small business, including cyber covers and “some sort of flood cover, which may not be a full-blown insurance product.”
Mutuals can also work for niche industries that have a very specific but major risk issues. There’s a “very successful” mutual for banana growers in Carnarvon, she said, that’s operated for about 30 years.
“They periodically experience cyclones which are always going to happen so banana growers there have a self-managing fund which they are required to contribute to and, as a result, they’ve been able to withstand and build back better whenever they’ve had one of these catastrophic events,” said Morrison.
“In many markets, particularly in the Asia-Pacific, mutuals are a very significant part of the sector and sometimes dominate,” said Morrison. “In Japan, the largest part of life insurances by far is mutual.”
She said this dominance is often a result of having legislative regimes that, unlike Australia, haven’t permitted demutualisation.
“Whereas in Australia, we’ve had a history of starting as mutuals and demutualising,” she said.
However, a change in legislation in 2019 has “taken the handbrake off for mutuals again.” Now, she said, mutuals can raise capital by issuing shares to external investors or members.
“The hardening of insurance markets means that people actually have to innovate and look for other solutions,” she said. “Mutuals are a potential solution.”
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