Robb on Cooperation

Discretionary mutuals

Posted by Alan Robb on 14 October 2009 | 0 Comments

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Earlier this month I was a keynote speaker in Canberra at the Unimutual 20th anniversary conference. Unimutual is a not-for-profit discretionary mutual that was formed to offer higher education and research institutions a commercially feasible alternative to insurance.

Its membership comprises 18 universities and 15 other education and research institutions, all Australian.

It is, however, open to applications for membership from New Zealand and elsewhere.

As a “discretionary” mutual the board has the absolute discretion to decide:

● whether or not to accept applications for membership;

● the level of protection it will grant – each member is individually rated according to its risk profile, individual claims history and pays contributions accordingly for the protection provided;

● the payment it will make on receipt of a claim.

Its publicity states that in exercising its discretion, “the Board is guided by principles of fairness and natural justice, governed by its constitution, rules and protection wordings, and the balance between individual members’ interests and those of the group as a whole.”

This means that Unimutual has the ability to consider claims in circumstances where they would be declined in the commercial market.

At first sight a discretionary mutual seems different from a cooperative where open membership has been the norm.

But open membership can allow for discretion to decline to admit new members where there is a capacity constraint.

The discretion to treat members differently also exists in cooperatives.

Co-ops have always recognised the need to guard against subsidizing some members by others.

Thus a supply co-op will normally give a greater rebate for large purchases than for single purchases of the same item.

What is common to discretionary mutuals and co-ops is the belief that the board should be guided by principles of fairness and natural justice to balance the interests of individuals and those of the group as a whole.

Unimutual has an excellent website and their members’ area contains a number of informative case studies which show members how their organisation benefits them in ways that an investor-owned insurance company could not.

It was very clear from the discussions at the conference that Unimutual is walking the talk about being guided by principles of fairness and natural justice.

On my way home from Canberra, I purchased a copy of Other People’s Money by Andrew Main.

The story of HIH, an Australian insurance company which collapsed in 2001, the blurb describes it as “a chronicle of arrogance, ignorance and self-delusion.”

I am sure the policy holders of HIH now wish they had been dealing with a mutual and that their protection was in the hands of people guided by principles of fairness and natural justice.●

– from the October/November 2009 Cooperatives News