20 October 2021
- Discretionary Mutual Funds (DMFs) may give leisure operators access to affordable risk protection
- Existence of strong, sustainable DMFs in Australia proves the model can work where best practice is followed
- Benefits for small business in mutuals model
- New hope for future of agricultural shows around Australia
The industry body representing mutuals, the Business Council of Co-operatives and Mutuals (BCCM), has welcomed key findings in today’s interim report by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) in its review of Discretionary Mutual Funds.
The chief executive of the BCCM, Melina Morrison, said the ASBFEO report was a step towards finding affordable risk protection solutions for small businesses and family enterprises impacted by rising premiums.
“As insurance markets harden and more areas of the economy are constrained by lack of access to appropriate risk protection, mutuals can offer a solution,” Ms Morrison said.
“It is a proven model, when it is accompanied by good governance, robust management and adequate capital to ensure both members and consumers are protected.”
The ASBFEO has been reviewing the suitability of Discretionary Mutual Funds (DMFs) as a solution to the insurance crisis facing Australia’s amusement, leisure and recreation sector.
Many operators in the sector have been struggling to obtain affordable insurance due to premium increases of up to 200%. As a result, many have been forced to cease trading and the future of Australia’s 580 agricultural shows, which inject some $965 million into the economy, has been threatened, prompting a proposal by the Australian Amusement, Leisure, and Recreation Association (AALRA) to establish a DMF.
DMFs provide risk cover on a discretionary basis to a group of individuals or organisations. While similar to traditional insurance protection, policy holders are not entitled to the same legal claim to indemnity against an event. Rather, claims are paid out at the discretion of the DMF executive, or board.
Under its proposal, AALRA is seeking funding assistance from the Federal Government either as a loan or grant to help establish an adequate claims pool and access to reinsurance cover.
The ASBFEO’s interim report, released today, found that a DMF may provide a solution to the insurance crisis facing the leisure and entertainment sector but warned that its suitability would depend on legislative reform from states and territories and support from councils and showground managers.
The report features BCCM members, Capricorn Mutual and CivicRisk Mutual, as case studies of successful, well-run mutuals.
“We are pleased the Ombudsman has recognised the existence of strong, sustainable DMFs proves the model can work, provided their example of best practice is followed,” Ms Morrison said.
The Ombudsman has suggested the BCCM document best practice guidelines.
Ms Morrison said small business owners could enlist mutual structures to help them get a foothold in the economy and level the playing field for them in markets that suit larger entrants.
“The benefits might include gaining a price advantage through bulk buying, group marketing and exporting together, through to this model of risk pooling,” Ms Morrison said.
“Provided the risks are properly modelled and the mutuals are well structured, they can offer a solution.
They are not a panacea for all situations and mitigating actions are just as important to reduce risk exposure.”
The BCCM will consult with members to develop a formal response to the interim report.
Australia has more than 2000 co-operatives and mutuals. The top 100 Australian co-operatives and mutuals have a turnover of more than $32.8 billion, and 8 in 10 Australians are a member of at least one co-operative or mutual.