FAQs

What are the main reasons for the establishment of LAML?

1. concerns about the lack of choice amongst insurers and the cost of cover relative to the cost of claims
2. LAML has attracted a wider range of excess insurance and reinsurance specialists who would not entertain insuring an individual authority in its own right
3. LAML offers at least the same level of cover (and in certain cases enhancements) and on terms which will reward authorities' investment in risk management and in a structure that will allow underwriting profits to be retained for the benefit of the members rather than third party shareholders
4. LAML will help derive benefits from the efficiency agenda
5. the participation in LAML is in line with the National Procurement Strategy

How are the risk exposures between different members equalised?

LAML's overall strategy is to have sufficient resources (premium) to meet its liabilities (claims and expenses).

LAML will look to each of its members to retain some element of risk as this is not only the most economically efficient way of funding losses but also gives the authority financial incentive to manage its risks. It will levy a premium from each member which is reflective of the risk they bring to LAML. LAML will provide premium recognition for good management of insurable risk. All things being equal, an authority retaining a large proportion of its risk should pay less by way of premiums than an authority retaining a lower amount of risk but in any case, because of the lower operating expenses of LAML and the absence of a profit demand, the premiums in both instances should be lower than that charged by the commercial insurance industry.

As more members join LAML and the exposure base increases, the amount of losses anticipated to be retained by LAML will also increase. However, the operating expenses of LAML are unlikely to rise significantly because of the increase in membership and there are likely to be savings available to members as numbers increase.

How is LAML's investment strategy set?

LAML has a Board of Directors who will have responsibility for establishing the strategic direction of the mutual including its investment strategy. The investment strategy will be subject to and reflective of the public sector investment controls.

How would surpluses be distributed?

LAML has a set of rules which determine the rights and obligations of each member. Issues such as the distribution of surpluses will be addressed in those rules. Where surpluses are re-distributed to the membership the amount is proportional to the premium paid in by the member less any benefits the member accrued (claims paid) in the period.

How is ownership distributed between the participating authorities?

The degree of ownership of the mutual any one authority has is normally reflected in the voting rights they enjoy. The rules of the mutual address how voting rights are allocated - namely one member one vote.

What are the other obligations of a local authority joining LAML?

In order to be authorised by the Financial Services Authority, LAML has needed to demonstrate that it has been capitalised sufficiently to support the premium income it is anticipating to write. This capital has come from the mutual's members as a "one-off" payment over and above the annual premium contributions.

The Board of Directors of LAML have the power, in the event that the mutual's assets are insufficient to meet its liabilities, to charge an additional premium to assist the mutual in meeting its liabilities.

What are the main benefits LAML is providing to its Participating Members?

1. Reductions of 15% on expiring rates - this has been achieved primarily because the profit demands, the cost of allocating capital and operating expenses of the mutual are lower than those of commercial insurers

2. The opportunity to participate directly in any underwriting surplus made by the mutual

3. Greater pricing stability - by adopting a risk retention, risk transfer strategy which is responsive to current reinsurance underwriting cycles, LAML is able to offer its members greater pricing certainty

4. Wider coverage - LAML has been able to offer a number of coverage extensions which, hitherto, have been generally unavailable in the commercial insurance sector including gradual premises pollution cover, higher limits of indemnity at no additional cost, terrorism cover on liability covers and cover in respect of defence costs arising out of corporate manslaughter charges

5. Control - the opportunity to participate directly in the determination of the mutual's risk appetite and underwriting philosophy

6. Incentivising effective risk management - direct participation in any underwriting surplus and exposure of their own capital to adverse underwriting results is a powerful incentive to practice effective risk management

7. Pan member risk management initiatives - these include a self assessment module for assessing property management, prototyping a tree roots claims handling protocol, adoption of a common methodology for management of contractors and contents valuation, mutual-wide adoption of a FraudLine initiative to combat fraudulent claims

8. Reduction of frictional costs associated with procuring insurance services - LAML offers its members a method of procuring their covers which eliminates many of the costs associated with procurement of insurances services from commercial insurers