Mutual insurers face unnecessary compliance expenses because of technical legal costs that are not applied to general and life risk products, the mutual for McDonald's food chain franchisees has told the Senate.

The Corporations Act does not provide the same exemptions to financial services licensees with “miscellaneous risk products” as to competitors in the general insurance market, according to MAFIP, whose 414 members include McDonald's franchisees in Australia and New Zealand.

MAFIP says regulation of mutuals should be tailored to recognise they are structured to let members manage risk rather than make a profit.

It told the Senate Economics Committee inquiry into co-operative, mutual and member-owned groups that the additional compliance burden is not justified.

Because the Act has no specific definition of a mutual and does not distinguish between an incorporated mutual and a mutual trust, oversight of different mutual models is dependent upon policy interpretations issued by the Australian Securities and Investments Commission.

“Overcoming obstacles such as the confusion of a mutual company and its assets with a managed investment scheme can be overcome by clear direction from the Government and the adoption of policies that assist rather than hinder the creation and running of mutuals.”

The submission says innovative approaches to risk protection adopted by company mutuals should be encouraged because they provide an alternative to traditional insurance products.

MAFIP started in 1998 and receives about $8.5 million a year in premium.

The submission says the insurance market had limited capacity in the late 1990s and groups with good claims records became concerned they were subsidising others with similar risk but poor histories.