BCCM moves to strengthen alternative form of financial risk protection

15 December 2022

The Business Council of Co-operatives and Mutuals (BCCM) today unveiled a Code of Conduct to govern the use of Discretionary Mutual Funds (DMFs), setting a clearer framework for affordable risk protection across the Australian economy.

There has been a renewed interest in DMFs as a substitute for conventional insurance in response to surging premiums and a series of natural disasters.

BCCM Chief Executive Officer Melina Morrison said regular economic cycles and shocks, as well as longer term environmental and social trends, are making risk management more challenging.

“As insurance markets harden, an increasing number of sectors across the economy are being impacted by a lack of access to appropriate risk protection,” Ms 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.”

DMF products differ from traditional insurance contracts because the cover is provided on a discretionary basis, with fund members having a right to have their claim considered but no automatic, contractual right to indemnity.

Responding to a request from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), the BCCM today launched a guide on Principles, Code of Conduct and Good Practices for DMFs.

The ASBFEO last year conducted an inquiry into the insurance crisis faced by Australia’s amusement, leisure, and recreation sector, and found DMFs were the most durable and practical solution.

“The humble country show was just the tip of the iceberg,” said Ms Morrison. “There’s a growing list of sectors and situations where conventional insurance is either unaffordable or inappropriate.”

Capricorn Mutual is a DMF operating for the benefit of small businesses in the motor trades industry, and this year paid out around $35 million to hundreds of members hit by floods in Queensland and New South Wales.

“We were able to do that because the success of the DMF model saw Capricorn Mutual attract more than $100 million in gross protection revenue,” said CEO Jim Glossat.

The university sector with its unique set of risks is another to have embraced the DMF model.

Unimutual CEO Geoff Henderson described today’s launch as an important step along the way: “The document is a valuable educative resource for all stakeholders with an interest in this model including policymakers, regulators, industry associations, businesses, advisors and mutual managers as well as the wider community.”

CEO of local government provider CivicRisk Mutual, Andrew Armitstead, said co-operatives and mutuals were focused on the long-term: “They are not a short-term solution and are more likely to endure through difficult financial times.”

“These guiding principles and code of practice will further underpin that essential ethos,” he added.

Signatories to the new governing document for DMFs 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.

Australia has more than 1,800 co-operatives and mutuals. They exist in almost every sector of the economy in Australia, including agriculture, housing, health, retail, mobility, wholesale and community services.

The top 100 Australian co-operatives and mutuals have a turnover of more than $34 billion, and 8 in 10 Australians are a member of at least one co-operative or mutual.

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

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