Australia’s regulatory framework is under pressure to better accommodate Discretionary Risk Mutuals (DRMs) as an alternative risk management tool for sectors facing insurance affordability challenges.
A new report released in Canberra by the Business Council of Co-operatives and Mutuals (BCCM) has highlighted DRMs’ potential to address gaps in insurance coverage, particularly in regions and industries where traditional insurance solutions are either unavailable or prohibitively expensive.
This includes areas affected by frequent extreme weather events and specific markets like the gig economy and community housing.
BCCM chief executive Melina Morrison said DRMs offer a longstanding model of risk sharing that deserves more recognition.
“With bushfire and cyclone seasons on the horizon, it is a timely reminder of the need for innovative solutions, including business model diversity, to ensure all Australians can manage their risk effectively and strengthen community resilience,” she said.
She said that DRMs are not a one-size-fits-all solution, but they are an important piece of the puzzle, provided the policy environment enables their growth.
The report, developed in collaboration with law firm Hamilton Locke, is the first comprehensive study of Australia’s DRM sector.
It explained that DRMs pool contributions from members to create a shared fund for claims. While members have the right to have claims reviewed, DRMs do not guarantee indemnity, as decisions are made at the discretion of the governing board or management.
According to the study, approximately 50,000 Australian businesses, organisations, and individuals are DRM members, contributing an estimated $370 million annually for risk management.
Prominent DRMs include Capricorn Mutual, Unimutual, CivicRisk Mutual, Peninsula Mutual, and Our Ark Mutual.
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The report attributed DRM growth to the withdrawal of some insurers from certain markets and reduced appetite for underwriting specific risks. It also cited innovation as a competitive advantage for DRMs.
Among the key users of DRMs in Australia are local governments, educational institutions, small businesses, social care providers, and faith-based organisations.
Survey findings in the report revealed that 87.5% of DRMs experienced membership growth in the past year, and all reported an increase in member contributions. Two-thirds of DRMs achieved a financial surplus for their members during the same period.
