London boroughs mutual poses £6m threat to insurers

Insurers will lose £6m in premiums a year if a majority of London boroughs decides to join the London Authorities' Mutual Ltd (LAML).

The London boroughs of Brent and Croydon are already placing business with the newly-launched mutual, while eight others – Camden, Haringey, Hammersmith and Fulham, Harrow, Islington, Kingston, Lambeth and Tower Hamlets – are expected to follow suit over the coming months.

Instead of placing their risks with the big three insurers in this sector, Zurich Municipal, St Paul Travelers and AIG, councils will pay into a pool which will be used to pay claims, saving them about 15% in insurance premiums.

The mutual is regulated by the FSA and will buy reinsurance from the traditional market, which will be used to pay extremely large claims.

LAML will focus on property insurance, employers' and public liability and act as an intermediary for motor insurance, with underwriting profits being retained by the local authorities.

The new mutual has been set up with funding from the London Centre of Excellence. Ken Cole, director of the centre, said: "I'm sure both local government and the wider insurance industry will be watching developments closely."

Consultants behind the scheme said it could save London boroughs a collective £6m annually.

LAML is open to all 32 London boroughs, the Corporation of London and the Greater London Authority.