Key role for Discretionary Risk Mutuals to protect businesses and communities

21 November 2024

• 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 today 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.

“This is an important benchmarking report that shines a light on a model of risk management that has stood the test of time across hundreds of years and yet is not well understood,” Melina Morrison, chief executive officer of the Business Council of Co-operatives and Mutuals (BCCM) said.

“With bushfire and cyclone seasons on the horizon, it is a timely reminder of the need for innovative solutions, including business model diversity, to ensure all Australians can manage their risk effectively and strengthen community resilience.

“While not a panacea, discretionary risk mutuals can provide diversity but we need a policy environment that allows this important sector to flourish.”

The report, commissioned by the BCCM in conjunction with law firm Hamilton Locke, provides the first snapshot of Australia’s discretionary risk mutual sector.

DRMs are owned by their members, who pool resources to fund their own coverage. They are usually set up by a group of businesses or individuals with a common purpose, risk profile and similar protection needs, where traditional sources of insurance may be either unavailable or too costly. As mutuals, they are required to put the interests of their members first.

In a DRM, members have a right to have their claim considered but, unlike insurance, do not have a contractual right to indemnity. Claims are considered at the discretion, usually of the DRM board or management but there is no right to cover. When combined with the member-first purpose of a mutual, this flexibility can be used for the benefit of the members.

According to the report, there are 50,000 Australian businesses, organisations and individuals using DRMs with combined contributions of $370 million to manage their risk.

The biggest DRMs include Capricorn Mutual, Unimutual, CivicRisk Mutual, Peninsula Mutual and Our Ark Mutual.

“The exit of some insurers and a reduced appetite to insure individuals and businesses for certain risks is driving the creation of new discretionary mutuals,” the report said.

Innovation is listed as another key driver of growth in the sector.

“Innovative, flexible and tailored products can be offered to members where insurers are slower to innovate,” the report said.

Among the biggest users of DRMs in Australia are small businesses, local governments, educational institutions, pilots, faith-based organisations and social care service providers.

According to the report 87.5 per cent of Australia’s DRMs reported growth in membership over the past year and all of those surveyed reported growth in contributions. Two thirds of the DRM’s surveyed delivered a surplus for members last year.

Read the Discretionary Risk Mutuals Pulse Check 2024 report.

Media enquiries

Sue Frost P&L Corporate Communications 0409 718 572

About the BCCM

The BCCM is the national peak body for Australia’s $43.2 billion co-operative and mutual sector.  Co-ops and mutuals provide essential services and affordable pricing to their members across the economy from banking, insurance and superannuation to retail, agriculture, health, social care and housing. One in eight Australians are members of a co-op or mutual.