Discretionary Mutual Funds

Discretionary Risk Mutuals Pulse Check 2024 report

DRMs often only option for communities impacted by severe weather
Offer alternative risk management to traditional insurance
50,000 businesses and individuals covered by DRMs
87.5% reported growth in memberships last year

Government and regulators are being urged to help facilitate the growth of Discretionary Risk Mutuals (DRM) as part of a diversified risk protection landscape.

A report released in Canberra in November 2024 highlights the important role DRMs are playing in providing alternative risk management to businesses and organisations in markets where premiums have become unaffordable.

This includes many communities subject to frequent extreme weather events, but also unique risk environments such as the gig economy and community housing, where a member led solution can drive better pricing, risk management practices and innovative product offerings.

Read the report

Read the full media release

Principles, Code of Conduct and Good Practices for Discretionary Mutual Funds

I am pleased to share with you the first industry Principles, Code of Conduct and Good Practices for Australian Discretionary Mutual Funds.

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, whether caused by ‘usual’ economic cycles and shocks, or by longer term environmental and social trends and challenges.

The Business Council of Co-operatives and Mutuals (BCCM) Discretionary Risk Mutuals Forum has developed this document over the past year and I thank the members of the Forum for their willingness to collaborate and contribute their time to this project. It is hoped that this document, which reflects the collective wisdom of Australia’s most successful Discretionary Mutual Funds, will be a valuable educative resource for all stakeholders with an interest in this model including policymakers, regulators, industry associations, businesses, advisors, mutual managers and the wider community.

It provides useful background on the history of the co-operative and mutual movement, the key elements of a mutual, the differences between a mutual insurer and a Discretionary Mutual Fund, the regulatory framework for Discretionary Mutual Funds and, importantly, how discretion is typically exercised.

Signatories to this document make a voluntary commitment to:

Eight principles, adapted from the international co-operative principles for the specific operating context of a Discretionary Mutual Fund, including Member Ownership and Control; and
20 behaviours, contained in the Code of Conduct including always putting members first

They also seek to observe 42 good practices in relation to structure, board, management, audit and risk, finance and compliance that underpin the operation of sustainable, member-focused Discretionary Mutual Funds.

Signatories also demonstrate a willingness to work with peers to continuously improve standards in the industry.

I invite all Discretionary Mutual Funds and mutual management companies to apply to become signatories to the Principles, Code of Conduct and Good Practices by contacting the BCCM via [email protected]

Melina Morrison
CEO BCCM

The Principles, Code of Conduct and Good Practices provide a framework for good practice and to establish minimum standards for DMFs and their managers that are readily available to members, intermediaries, regulators, and other stakeholders.

Download the Principles, Code of Conduct and Good Practices

What are Discretionary Mutual Funds?

Discretionary Mutual Funds (DMFs) operate to provide financial protection for the consequences of a broad spectrum of property loss or damage and third-party liabilities.

DMFs 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.

DMFs have existed for more than 150 years. The oldest DMF still in business is The Medical Defence Union in the UK, which first offered assistance and indemnity to its members in 1885.

CEOs talk about DMF benenfits and the Code

Interview with Capricorn CEO Jim Glossat, Unimutual CEO Geoff Henderson, CivicRisk Mutual CEO Andrew Armitstead and BCCM CEO Melina Morrison.

"People trust Discretionary Mutual Funds because we are the calm centre in a world of swirling risk and uncertainty."

– Melina Morrison, CEO BCCM

Principles, Code of Conduct and Good Practices

These Principles, Code of Conduct and Good Practices for Discretionary Mutual Funds have been developed jointly by the BCCM and a working group of Australian Discretionary Mutual Funds through the BCCM Discretionary Risk Mutuals Forum, comprising DMF members of the BCCM.

There has been a marked increase in interest in Discretionary Mutual Funds (DMFs) as a substitute for conventional insurance that has sparked a resurgence in companies promoting the model and the ability to set-up and manage mutuals. This includes not only the major broking houses, but also a number of smaller firms and individuals.

In a submission to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Inquiry into a DMF for the amusement and leisure activity industry, the BCCM recommended the establishment of a set of good practice guidelines for DMFs. The BCCM’s proposal was accepted as a key recommendation of the ASBFEO report. The ASBFEO Inquiry said:

“6.7. DMF Better Practice

6.7.1 There has been an evolution in Australia of what is considered ‘good practice’ in operating a DMF.

6.7.2 While this good practice is not documented and publicly available, those operating in and adjacent to the DMF sector speak about it and appear to have mostly a shared understanding of how it applies to their operations. While not everybody will agree with each of the items, it may be wise for the sector or the Business Council of Co-operatives and Mutuals to consider the development of a documented ‘best practice guide’.” (ASBFEO DMF Inquiry Report, 20 Oct 2021 p33)

Furthermore, the ASBFEO Inquiry Report stated that best practice guidelines would help ensure ethical standards and duty of care to members in relation to DMFs now being able to raise investment capital following recent changes to the Corporations Act:

“6.7.3 Best practice generally includes: 1. Ensuring an appropriate structure, which (as discussed below) could include either a Trust or a Company limited by Guarantee. Advisers to this project prefer the Company structure due to the greater suitability for providing good governance over a longer period, and the ability to raise Mutual Capital Instruments.”

Following release of the ASBFEO Inquiry Report, the BCCM raised the issue within the BCCM Discretionary Risk Mutuals Forum. The members of the forum supported the BCCM proposal and following due consideration developed this set of Principles, Code of Conduct and Practice as a guide to good practice amongst Australian DMFs.

"Co-operatives and Mutuals are here for the long-term and not a short-term solution. As they are member-focussed and not profit motivated, they are more likely to endure through difficult financial times."

– Andrew Armitstead, CEO, CivicRisk Mutual

BCCM Discretionary Mutual signatories

"This code and practice provide a benchmark for what good looks like. Through this, our sector will not only continue to perform strongly long into the future, but also provide new entrants with a framework of what is expected."

– Jim Glossat, CEO, Capricorn Mutual