Six councils have left the Municipal Association of Victoria (MAV) insurance scheme in the past two years, as private insurers muscle in on a market they once abandoned.

MAV and its scheme manager, JLT, have played down the impact of the defections, claiming the mutual model is as strong as ever.

MAV Insurance was established in 1993 to provide council policies after private insurers distanced themselves from the sector during difficult market conditions.

Similar arrangements were set up across the country, and have thrived since. Informed sources have told insuranceNEWS.com.au the mutuals have rebated millions of dollars to member councils. Each holds surpluses of more than $20 million, “all of which belong to the councils”.

Until 2013/14 all 79 Victorian councils were with MAV, but last financial year Frankston and Glen Eira changed insurance providers, and this year Wyndham, Banyule, Kingston and Mornington Peninsula councils followed suit.

Earlier this year Victorian Auditor-General John Doyle criticised MAV for not running a competitive tender for its insurance services, but MAV disputed the findings.

JLT CEO Leo Demer told insuranceNEWS.com.au rivals are attempting to sway councils with false promises of significant savings.

“In the last year or two one insurer has started saying to councils, ‘look at all the money we can save you’,” he said.

“But they are offering a lot less cover and bigger deductibles. The deductibles in most cases have been increased from $10,000 for each claim to around $100,000 for each claim – a major point of difference.”

Mr Demer says mutuals such as MAV are council-owned and provide other services in addition to insurance, and if there is a surplus it is returned to them.

He says that by reducing cover, councils may leave themselves exposed.

“The size of claims can be very high. Just think about events such as the Black Saturday bushfires.”

He says while a small number of councils have left the scheme, it remains a successful model.

Stonnington and Greater Dandenong returned to MAV after being covered elsewhere, and 30 councils in Queensland have joined a new property mutual.

“These mutuals are highly successful at providing cover to councils through hard and soft markets and well regarded,” Mr Demer said. “Most councils in Australia belong to one, 100% in many states.

“A few have drifted away in Victoria for reasons that are highly disputable, and they will no doubt return as others have done in the past.”

MAV President Bill McArthur told insuranceNEWS.com.au it is the nature of commercial insurance that clients come and go.

“History has shown that, because of the liabilities and exposures of councils, the private sector has been unable to provide sustained cover over time,” he said.

“The MAV has… a focus on providing cover that is tailored to the specific circumstances local councils experience, including a public liability cover to $400 million and professional indemnity to $300 million, at a reasonable cost.”

Matthew Hubbard, Interim CFO for Mornington Peninsula Shire Council, told insuranceNEWS.com.au softening in the insurance market has led to “increased appetite, and hence competition” for the local government sector.

He says this has contributed to significant savings, as has a reduction in the level of coverage, based on the findings of a comprehensive risk review.