The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has given preliminary backing for a discretionary mutual fund as a solution to the insurance crunch facing amusement park, leisure and recreation operators.

ASBFEO today released its interim report on the feasibility of such a scheme, saying it may be a suitable way to address the current insurance crisis faced by the sector.

It launched the feasibility study in June, including a review of a plan by the Australian Amusement, Leisure, and Recreation Association (AALARA) to set up a mutual for its members, who have been struggling to secure mandatory public liability insurance.

Rate hikes of as high as 200% in some cases, combined with a scarcity of insurance providers, have sparked concerns about the long-term survival of the sector.

“A [discretionary mutual fund] suits the industry represented by AALARA,” the interim report said.

“This finding of suitability is based on there being sufficiently significant issues in sourcing appropriate insurance that a non-insurance solution is warranted.”

The interim report says its findings also take into account the likelihood that the public will be negatively impacted should insurance remain unavailable, the detriment to the commercial businesses in the sector and many rural communities as well as the size of the sector being sufficient to support a mutual.

“The lack of insurance coverage could lead to the closure of businesses in the amusement and leisure sector, significant job losses (particularly in regional areas), stranded assets and loss of economic activity generated by metro and regional shows and amusement parks,” Ombudsman Bruce Billson said.

“There is a very real possibility shows won’t go on - something has to be done for the show to go on.

“A [discretionary mutual fund] may represent the only workable solution.”

ASBFEO is seeking submissions to its interim findings, which point out there are challenges to setting up a mutual and that there are other alternatives available. These other options include establishing a captive, self-insurance, group insurance schemes, a reinsurance pool and tort reforms.

It also notes that specialist underwriting agency Coversure has recently entered the market to offer public liability insurance to the sector.

The interim report says the lack of available or affordable insurance is not the fault of the amusement, leisure, and recreation industry. Rather, it reflects a hardening of the broader insurance market, both in Australia and internationally.

“Many operators had been advised that come September 2021, there will be no insurance coverage available for them in Australia,” the report said.

"A [discretionary mutual fund] may represent a more durable solution but will only be fit for purpose if relevant statutory requirements and asset owners/managers recognise the utility and functionality of this form of risk cover.

“A [discretionary mutual fund] will only be effective if governments, particularly State, Territory and municipal, and private asset holders, accept it as a suitable substitute if requisite insurance obligations cannot be satisfied.”

It says the facility offered by Coversure will support some businesses, but not all.

Coversure GM Adrian Gamble says the discretionary mutual fund proposition appears to focus on delivery of cheaper insurance substitutes and discusses little that will deliver any increased safety and risk mitigation for the public.

“Risk mitigation and reduction is a cornerstone of the Coversure approach to underwriting this business,” he told insuranceNEWS.com.au today.

“The risks Coversure has reviewed to date often have very rudimentary statutory recording and certification that is presented in the guise of risk management."

He says the insurance market for amusement operators has been influenced by both claims results and actuarial reviews of underwriters as to the prudent risk margins required to operate a portfolio of amusement ride business.

“Commercial insurance will provide a market solution and this will be influenced by risk management and risk avoidance that may be delivered in the form of legislative reform,” Mr Gamble said.

Precision Underwriting, which provides the excess layer solution to support the Coversure facility, has also responded to the interim report.

“It is no secret that the market has been very hard recently,” MD Paul Douglas told insuranceNEWS.com.au.

“We have recently been provided additional capacity on the back of good results and with Coversure's new supporting carrier, we are in a position to help a lot of businesses get back operating again.

“The rates have increased and they had to because they were too low in the past.”

Closing date for submissions is November 3.

Click here for the interim report.