High cost of P/C coverage prompts boroughs to form mutual

LONDON—The high cost of coverage has driven a group of local authorities to set up the first local government insurance mutual in the United Kingdom in more than 100 years.

The mutual, London Authorities Mutual Ltd., is open to all 32 London boroughs, the Corporation of London and the Greater London Authority.

While 28 of these had responded positively to a feasibility study conducted last year by the London Regional Centre of Excellence, so far, only 10 have signed up to join the pool (see box).

LAML will offer local authorities insurance coverage for property, employers liability and public liability exposures.

Malcolm Davies, head of risk management and insurance at the London borough of Croydon, said participation to date is far from disappointing. "Our target for making the mutual feasible was for six local authorities to sign up to it, so having 10 has exceeded that. I haven't heard of any authority that thinks it's a bad idea. The others want to see it in practice," he said.

The boroughs of Brent and Harrow are the first to place business with LAML, while the other founding authorities will start doing so over the next 14 months as their existing contracts come to an end.

Mr. Davies said that while driving down the cost of coverage by as much as 15% was certainly a priority in forming the mutual, there were other factors, including the prospect of working together on risk management to improve the members' risk profiles.

A spokesman for the LRCE said that the mutual had been set up because it is difficult for councils to negotiate good premiums, particularly on property risks in London, because the market is dominated by a few insurers.

The mutual will be run by a board of directors, appointed by member authorities, that will include a minority number of independent directors. So far, there are seven directors, two of whom are independent.

Financial Service Authority authorization required that the mutual would have access to a capital fund sufficient to cover its prospective liabilities. "The company is guaranteed by the 10 participating authorities, and is capitalized to £7.7 million ($15.1 million)," said Mr. Davies.

Ownership of the mutual is vested in the members, and since there are no shareholders, underwriting profit can be retained for those members.