A professional indemnity mutual is being explored as an alternative risk protection offering as companies and individuals are hit by soaring insurance premiums and the withdrawal of traditional capacity.

Sydney-based underwriting agency Asia Mideast Insurance and Reinsurance (AMIR) has held preliminary discussions with reinsurers regarding a professional indemnity pool and is seeking feedback from brokers, underwriting agencies and potential investors.

AMIR CEO Adel Dawood says mutuals have a long history in Australia and internationally in providing cover for hard-to-insure risks, and are well suited for the current situation, where issues in the directors’ and officers’ area are contributing to a market over-reaction in professional indemnity.

A broad brush is also being applied by underwriters in professional indemnity, despite differences in individual risks.

“A mutual is an alternative if the general insurance market is not providing the required cover at affordable rate, and we expect the market in Australia and worldwide will continue to harden for quite some time,” Mr Dawood tells insuranceNEWS.com.au.

“We will see mutuals and pools and other alternative arrangements being started in Australia and outside Australia.”

One of the largest mutuals globally is Oil Insurance Ltd, established in the 1970s due to problems faced at that time by energy sector companies in obtaining cover.

Under the professional indemnity proposal, insureds would become members of the mutual, while a management company provides the underwriting and claims handling services.

AMIR, a Lloyd’s coverholder that started in 1997 specialising in the oil and gas sector, has approval under its Australian Financial Services Licence to offer discretionary risk products, which are regulated by the Australian Securities and Investments Commission.

The firm is the AFSL licence holder for Aussie Farmers Mutual, which provides farm income protection cover to its members, and Our Ark Mutual, aimed at churches, schools, aged care and not-for-profits.