More Australian entities are using discretionary risk mutuals, bypassing traditional insurance products to protect their assets, according to a report released today.

The Business Council of Co-operatives and Mutuals-commissioned report says at least 150,000 businesses, organisations and individuals relied on the risk-sharing arrangement in the 2024-25 financial year, with combined contributions of $416 million. 

In the council’s last market update in 2024, there were 50,000 entities and individuals using mutuals with contributions of $370 million. 

Today’s report, produced in collaboration with law firm Hamilton Locke, says 57% of mutuals reported delivering a surplus for members in FY25. 

“Surpluses are being retained, invested in risk management programs for members, or returned to members by way of rebates or other mechanisms, with a notable shift this year towards building retained earnings and bolstering member balance sheets,” the report said. 

Small businesses, local governments, educational institutions, pilots, faith-based organisations and social care service providers are among the biggest DRM users in Australia. 

The DRM growth against a backdrop of weak insurance prices is notable, according to the report. 

“In a softening insurance market with improved affordability across corporate property, professional lines and general liability for the first time in 21 years, discretionary mutuals continue to be an important solution for many communities that continue to be underserved or unserved by the traditional insurance market,” Hamilton Locke head of funds and financial services Charmian Holmes said. 

She says surpluses are a sign of good financial health which in turn signals prudent capital management to the (re)insurance market. 

“There is a misconception that discretionary mutuals, as not-for-profit structures, should operate as leanly as possible and minimise retained funds,” Ms Holmes said. “However, operating profitability is important for generating a surplus.” 

The report says 87% of mutuals have paid out at least 75% of claims in the past year, compared to 92% in FY24. 

“Discretionary mutuals can be just as effective as insurers in terms of how they manage claims costs, but claims are often handled more sensitively and efficiently, because the mutual can dispense with a lengthy claims investigation process,” the report said. 

While the loss ratio for mutuals can be much lower than for an insurance company, the report says “invariably, this is what creates a surplus and, in many cases, the surplus is reinvested in the mutual and can assist the mutual to re-capitalise in years when many claims are made and the capital is eroded. The data from FY25 confirms that the sector is actively embracing this discipline.”