15 February 2008
Legal action by a private firm against a not-for-profit insurance mutual set up by London local authorities could threaten its existence, its chair has warned.
London Authorities Mutual Limited began operations in April. The company was backed with funding from the London Centre of Excellence, which is sponsored by the Department for Communities and Local Government.
It was established to tackle concerns about the limited number of local government insurance providers and the difficulty London councils had in achieving the best value for their insurance premiums.
Laml is expected to offer savings of up to 15% on councils' insurance spend, and a series of London authorities are expected to sign up as their current insurance deals expire.
But Risk Management Partners – which is owned by insurance broker Arthur J Gallagher and acts as an agent for giant insurer AIG in the UK public sector – has launched a legal challenge against the London Borough of Brent, a founder member of Laml, which came to court this week.
The judicial review – in which Laml and the London Borough of Harrow will also be represented – will establish whether local authorities can insure themselves through a mutual rather than go through a commercial tendering process.
Laml chair Nathan Elvery, who is director of finance and resources at the London Borough of Croydon, said: 'It clearly would be a tragedy if all the momentum behind this initiative was held up or even aborted as a result of this case.'
But he added: 'Our energy and enthusiasm is undimmed and we are demonstrating a much-admired model for the whole shared services agenda in the public sector.'
Risk Management Partners was not available for comment.
Andrew Jepp, head of local government at public sector insurance specialist Zurich Municipal, said: 'Mutuals obviously can provide an alternative vehicle for insurance for local authorities and we wouldn't want to preclude authorities having a choice in their insurance arrangements. However, we do think authorities need to understand all the pros and cons. One of the reasons Laml was established was a perceived lack of competitiveness in the insurance market, so it strikes us as odd not to test that in a formal tendering arrangement.'
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