Mutuals & Insurance: Risk Cover for Renewable Energy Operators

When it comes to risk cover, is a mutual what is needed to meet the concerns of renewable energy operators?

As climate change and extreme weather cause damage and destruction across the globe, renewable energy suppliers and operators of services affected by extreme weather are seeing a tightening of terms and conditions and a reduction in risk appetite from insurers.

For the renewables sector, this is compounded by the limited understanding of risk given its relatively nascent stage. Underwriting policies and pricing of risk can be lacking or overinflated in order to best meet the needs of not only the policyholder, but also the shareholders of the corporate insurers.

Further Reading on Risk Appetite in Renewables:

This is where mutuals can bring to bear their unique features. A mutual is a company that is owned by its customers – its members. It typically aims to provide cover to its members at or near cost, given it is not motivated by the generation of profits.

There are primarily two types of mutuals providing risk cover:

A fully authorised and regulated mutuals insurance company

A discretionary mutual

In both cases, ownership and control of the mutual resides with its members, delivering a symbiotic alignment of interests and clarity of purpose. By the members, for the members is the mantra at the heart of everything the mutual does. Customer satisfaction rates in a mutual (as measured by retention rates), are far higher in discretionary mutuals than when contrast against those of corporate insurers, the vast majority (if not all) members remaining part of the mutual membership year after year.

What are the key benefits?

A mutual is owned entirely by its customers – its members.

The mutual is controlled by a board, which is majority, if not entirely, drawn from within its membership.
With ownership and control residing within the same group, this delivers a complete alignment of interests between the members and their mutual.

Members typically deal directly with their mutual, avoiding the frictional costs which come with placement via insurance brokers.

Surpluses created within the mutual are not subject to the application of corporation tax.

Contributions into the mutual do not attract insurance taxes (IPT).

Surpluses can be retained within the mutual, as a fighting / stabilisation fund, or they can be:

Returned to members.
Utilised to fund risk management activities.
Be applied as a discount off the following renewal.
Or any combination, as is deemed to be appropriate by the board of the mutual.

Member retention and satisfaction rates in mutuals are typically higher than those of shareholder-owned insurance companies.

The mutual structure avoids the profit margins and conflict of interest which shareholders inherently bring with them.

Bulk-buy leverage: The mutual harnesses the collective group buying leverage of its membership. Achieving a collective outcome, which typically is not available to them on an individual basis.

Rather than relying on an insurer to make decisions on claims, the mutual makes these decisions itself, based upon what is in the best interest of the member and the membership, achieving member centric outcomes.

The level of risk members are able to collectively retain and handle in their mutual is higher than would be prudent for them to retain on an individual basis.

The practitioners within any given sector are typically far more adept at differentiating the ‘good’ operators (i.e those with good risk management practices) from the ‘poor’ operators than insurers are typically able to achieve, and the ‘poor’ operators can be excluded. This alone has the potential to transform the results.

Collectively these differences have the potential to deliver significant cost advantages and enhanced flexibility.