7 April 2008
Article from the Municipal Journal, 20 March 2008
Of Mutual Benefit?
The new, local authority-owned insurers, the London Authorities' Mutual Ltd has, unsurprisingly, created a stir among private insurers. Jon Hanlon looks at the benefits of the scheme.
A partnership of 10 councils, the London Authorities' Mutual Ltd (LAML) represents a new frontier in local government insurance.
For the first time in 100 years, councils are in line to make significant savings on their premiums by jointly agreeing insurance contracts.
Perhaps, unsurprisingly, this dramatic change in the way councils are able to do business has created something of a stir. In an ongoing High Court challenge to Brent LBC by private insurer Risk Management Partners, the private sector is essentially questioning the existence of LAML, and thereby the right of councils to insure themselves mutually.
LAML's supporters claim the project is proof that, by working together for the common good, councils can circumvent the world of private insurance and, in the process, make six-figure savings for their communities. Martin Fone, chief executive and senior underwriter at Charles Taylor Consulting Plc, which manages LAML, says: 'From the very start, LAML has aimed to provide local authorities with a strong alternative to the existing small pool of insurance providers.
'Considerable hard work has gone into ensuring the mutual provides a high-quality, cost-effective option to all London councils aiming to operate more efficiently.'
With long-running concerns among councils over the cost of their insurance premiums, a lack of supplier competition, and the pitfalls of being locked into long-term agreements with their insurers, 28 London boroughs agreed to take part in a major study on the state of the insurance market available to councils. Funded by the London Centre of Excellence, the 2005 study found the establishment of not-for-profit insurance company set up by, and for, the benefit of London authorities, could deliver both upfront premium savings and longer-term benefits for members.
Regulated by the Financial Services Authority, LAML works by using the collective spread of risk represented by the participating authorities, by retaining a higher degree of risk collectively than would be possible individually. Essentially, LAML members have access to more competitive insurance markets, which are not necessarily accessible individually.
Chair of the board of directors, Nathan Elvery, says: 'LAML is without precedence and represents a fresh injection of competition in the market. It is underpinned by a robust business platform and subject to a tough regulatory framework.'
LAML is a registered company, owned by its 10 member councils: Brent, Camden, Croydon, Hammersmith & Fulham, Haringey, Harrow, Islington, Kingston, Lambeth and Tower Hamlets.
Until now, the insurance market for councils has been dominated by just a few providers. LAML's founders say the mutual is one way of offering greater choice, as well as helping councils tick other boxes, including making efficiency savings, providing best value and joint-working. In pooling together insurance risk for fire, damage and general loss on claims worth more than £1m, LAML expects to provide a better service, at a lower cost.
With each participating council in line to make efficiency savings and share in the underwriting surplus, it is hoped that frontline services will benefit, against a backdrop of decreasing funding. Since starting business in April 2007, the first of the founding members, Brent, Harrow and Tower Hamlets have all moved their insurance to LAML, saving £278,000 in insurance premiums.
Tower Hamlets LBC chief executive, Martin Smith, says: 'As more councils join LAML and we pool resources, we will start to see a transformation in local authority insurance and risk-management processes.'
The next seven authorities will insure through LAML during the next 14 months, as their contracts expire. This is anticipated to deliver another £500,000 of savings through reducing insurance premiums, representing 15% saving for each member authority.
Directed by its members with covers designed around their needs, LAML provides an unprecedented degree of ownership, which many observers consider to be its key strength. LAML's very existence can be attributed to the clause of the Government's public service reforms which have introduced new power of community initiative or wellbeing. Effectively, this has given councils the go ahead to do 'anything likely' to promote or improve the economic, social or environmental wellbeing of its area.
LAML members are certainly arguing the case for the mutual's contribution to economic wellbeing.
Other authorities are now looking to join LAML, and there has also been considerable interest from different parts of the public sector, including fire and rescue authorities, which have developed their own mutuals.