Amid renewed interest in risk protection schemes as an alternative to traditional insurance products, the Commercial Council of Cooperatives and Mutuals (PCCM) has prepared its first voluntary code of conduct for operators of discretionary mutual funds (DMFs).
BCCM today launched the Good Practice Guide, a document that took around a year to develop after the Australian Small Business and Family Enterprise Ombudsman completed its DMF investigation.
The inquiry looked at the insurance crisis facing the leisure, leisure and entertainment industry – DMFs offer a “more practical and durable” solution for businesses struggling to afford insurance in a tightening rate cycle.
“There is a growing list of sectors and situations where conventional insurance is unaffordable or inappropriate,” said BCCM CEO Melina Morrison.
“DMFs offer an alternative, providing financial protection in the event of a wide range of property loss or damage and third-party liabilities.”
Regular economic cycles and shocks, as well as long-term environmental and social trends, make risk management more challenging for businesses, forcing them to look for other options, he says.
“There is a resurgence in interest in mutual insurance and risk protection, with many investors seeing the potential of discretionary mutual funds to help them respond to tightening insurance markets,” Ms Morrison said.
According to the guide – Principles, Codes of Conduct and Good Practices for DMFs – major brokerage firms are also promoting the DMF model.
Mutuals are owned by and for the benefit of members, and the guide states that the DMF arrangement operates to provide financial protection against a wide range of property loss or damage and the consequences of third-party liabilities.
DMF products, although they have many similarities with insurance products, are not insurance contracts because the insurance is offered on a discretionary basis.
Members of the DMF are entitled to have their claim considered but, unlike insurance, do not have a contractual right to compensation.
The Code of Conduct sets out a list of 20 principles, including putting members’ interests first at all times, handling claims sympathetically and providing good governance and having an effective board of directors with appropriate experience, knowledge and skills.
It also sets out 42 good practices related to structure, board, management, audit and risk, finance and compliance that support the operation of sustainable, member-focused DMFs.
Click on Here To get more from Code of Conduct.