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Conduct code for mutuals launched as 'traditional' premiums rise

The Business Council of Co-operatives and Mutuals (BCCM) has prepared its first voluntary code of conduct for operators of discretionary mutual funds (DMFs), amid renewed interest in the risk protection schemes as alternatives to traditional insurance products.

BCCM launched the good practice guide today, having taken about a year to develop the document after the Australian Small Business and Family Enterprise Ombudsman completed its DMF inquiry.

The inquiry – which looked at the insurance crisis facing the amusement, leisure and recreation sector – concluded DMFs offer the “most practical and durable” solution for businesses struggling to afford cover in a hardening rate cycle.

“There’s a growing list of sectors and situations where conventional insurance is either unaffordable or inappropriate,” BCCM CEO Melina Morrison said.

“DMFs offer an alternative, providing financial protection in the event of a broad range of property loss or damage and third-party liabilities.”

She says regular economic cycles and shocks, as well as longer term environmental and social trends, are making risk management more challenging for businesses, forcing them to look for other options.

“There is a renaissance in interest in mutual insurance and risk protection, with many stakeholders seeing potential for discretionary mutual funds to help respond to hardening insurance markets,” Ms Morrison said.

According to the guide – Principles, Code of Conduct and Good Practices for DMFs – major broking houses are also promoting the DMF model.

Mutuals are member-owned and exist for their benefit, and in a DMF arrangement they operate to provide financial protection for the consequences of a broad spectrum of property loss or damage and third-party liabilities, the guide says.

DMF products, whilst having many similarities to insurance products, are not contracts of insurance because the cover is provided on a discretionary basis.

Members of a DMF have a right to have their claim considered but, unlike insurance, do not have a contractual right to indemnity.

The Code of Conduct sets out a list of 20 principles including to place the interests of members first at all times, provide empathetic claims handling and good governance and to have an effective board of directors with the appropriate range of experience, knowledge and skills.

It also sets out 42 good practices in relation to structure, board, management, audit and risk, finance and compliance that underpin the operation of sustainable, member-focused DMFs.

Click here for more from the Code of Conduct.