CGU Motor Trades insurance attacks mutual schemes.

There is a clash brewing between insurer CGU Motor Trades and Capricorn Mutual over the difference between general insurance and so called mutual scheme insurance. It has reached the stage where CGU Motor Trades has taken provocative full page advertisements headed ‘No guarantee to pay your claims’ it which it names Capricorn Mutual which, it says, does not offer consumers the protection they have with regular insurers governed by the Insurance Act.
CGU Motor Trades is a niche market offshoot of CGU Insurance, itself part of the giant IAG. As the name suggests, CGU Motor Trades insures property and contents of panel shops, motor dealers and parts distributors. It is governed by Australian Prudential Regulation Authority (APRA).
Capricorn Mutual is a Perth based offshoot of the Capricorn Society which is a buying co-operative of parts and products for mechanical workshops, service stations and smash repairers throughout Australia.
The Capricorn Society was formed in 1975 by a group of service station owners who wanted to combine their buying power to obtain better prices. It claims over 8000 members, a $400 million turnover and over 1200 suppliers throughout its three countries of operation: Australia, New Zealand and the Republic of South Africa. Members must be a registered automotive repairer, panel beater, auto electrician, service station or general workshop.
Chris Jackson, public affairs manager for CGU Motor Trades, says that although mutuals like Capricorn have not yet impacted negatively on his company’s business, consumers ought to be warned that mutuals cannot, and do not offer the same level of protection.
As the result of a meeting held in August 2002 with the Medical Defence Organisations, APRA said: ‘discretionary mutual funds have been established over many years in various sectors of the economy by community and business groups seeking to reduce the cost of insurance through forms of cover that escape the stringent capital requirements of the Insurance Act. While discretionary mutual funds have sometimes worked in the past, APRA views them as being inherently flawed, potentially under-funded and ultimately unsustainable in an environment of rising community standards and expectations. Members pool resources to provide coverage to the membership on a ‘discretionary’ basis. They are not licensed or regulated under the Insurance Act because there are no contractual terms and conditions governing the payment of a claim. Claims are paid at the discretion of the organisation and only if there is sufficient capital.’
Obviously relying on this and similar APRA statements, CGU Motor Trades manager, Malcolm Freeman, states in the advertisement:
‘Businesses should be on the lookout for the mutual scheme products, which appear like insurance but are not. It’s no surprise that these mutual schemes often offer cheaper rates because they’re not obliged to pay claims. Any payment is completely at their discretion.’ The advertisement goes on to say ‘While schemes such as the one offered by Capricorn Mutual may have significant backing, competent management and good intentions, they leave the consumers without the protection offered by the Insurance Act. The Royal Commission into the failure of HIH was so concerned about this issue, it recommended mutual schemes should have to comply with the requirements of the Insurance Act. Just because some mutual schemes had an Australian Financial Services licence from ASIC, did not mean they met the same capital and solvency safeguards as authorised insurers’
Capricorn has reserved any comment on the CGU Motor Trades attack.