Sportscover surprised by Ombudsman's support for leisure mutual fund

The Small Business and Family Enterprise Ombudsman has recommended a Discretionary Mutual Fund (DMF) to help the amusement, leisure, and recreation sector continue operating in a hardened global insurance market – surprising Sportscover Australia's leisure arm, Active Underwriting Specialists (Active).

The Ombudsman had been investigating a potential mutual fund over the past two years. Its final report issued on December 06 identified significant obstacles to the creation of a DMF, including:

• A DMF is unlikely to succeed without substantial government involvement at all levels;
• A DMF will be unable to provide members with insurance certificates of currency, which are mandatory confirmations of risk coverage required by local government authorities and other parties;
• “Mutuals are known to operate more effectively where there is a regular pattern of relatively small losses as opposed to infrequent catastrophic losses,” according to the report. Unfortunately, the nature of accidents and injuries in the carnival sector, in particular, does not fit this pattern;
• Cover for public liability is not common under a DMF structure; and
• Claims are not guaranteed to be supported.

With the Ombudsman's findings, Active found it surprising that the Ombudsman still showed its support for a leisure-based DMF.

Read more: DMF: Is this the only hope of saving Aussie recreation as we know it?​

Active CEO Simon Allatson explained that creating a mutual might not solve the perceived insurance availability issues in the long term because the DMF will be subject to the same market forces, but on a reinsurance basis – which he claimed has failed many times in the past.

“It was our submission that a stronger focus on quality assurance, risk management, safety protocols, and training would provide greater security for the sector,” Allatson said.

“Active Underwriting has demonstrated over many years that there are insurers [that are] able and willing to support the sector. However, as in any market, there are good risks and poor risks. A DMF should not be established to subsidise poor risks at the expense of operators who are operating safely and professionally.”

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Active had submitted a response to the Ombudsman for consideration, highlighting how it is insuring more than 3,500 policies in this sector. Most of these policies have been with the agency for more than three years, suggesting that the market is going through a normal cycle and “weeding” out underperforming risks rather than going through an insurance crisis.

Ombudsman Bruce Billson argued that it is possible the “show cannot go on” if small businesses in the amusement and recreation sector cannot get the essential risk protection they need to operate.

“The clear and present danger is real. To put it into perspective, the sector employs over 7,000 people and contributes $1.84 billion to the economy in total,” Billson said. “If these businesses cannot secure risk protection, they face imminent closure, and that will lead to significant job losses (particularly in regional areas) and a loss of economic activity generated by metro and regional shows and amusement parks.

“In this light, our final report endorses the Australian Amusement, Leisure, and Recreation Association's (AALARA) proposal to establish a DMF as the only current workable solution to the immediate need for coverage in the sector.”