Victorian councils need to pay more attention to insurance: audit

The Victorian Auditor General has released a report on local government insurance risks, examining whether councils have been prudently managing insurable risks and procuring insurance that represents value for money.

The report concluded that “Councils are not always giving the purchase of their insurance the thorough consideration it deserves. At best, this means they may be paying more than they need to and, at worst, if there are gaps in their coverage it may significantly impact their operations should an undesirable event occur.”

At 30 June 2017, Victoria’s 79 councils controlled $91.2 billion of community assets, employed over 30 000 people and received $10.5 billion in revenue against $8.1 billion of expenditure across their programs and infrastructure spend.

Seven councils were audited - four metropolitan councils and three regional or rural councils - to provide comparability, contrast metropolitan versus regional and examine varying insurance istories. These were City of Ballarat, Benalla Rural City Council, Glen Eira City Council, Kingston City Council, Pyrenees Shire Council, City of Stonnington and Yarra City Council.

The audit also included the Municipal Association of Victoria (MAV) as the provider of Liability Mutual Insurance, and the Department of Environment, Land, Water and Planning (DELWP) as the lead agency supporting local government.

The audit expressed concerns about the financial sustainability, as well as limited external monitoring and transparency of LMI, a mutual insurance scheme which was established by MAV in 1993 with which 68 of the 79 councils purchase their public liability/professional indemnity insurance (PL/PI insurance).

It noted a conflict of interest for MAV in its management of the LMI service contract and the financial benefit it receives from the service provider, and recommended that MAV “ undertake an open and transparent tender for Liability Mutual Insurance’s service provider, run in accordance with Victoria’s best practice procurement guides”.

It should also undertake a strategic and internal cost review of LMI and review its pricing model, its governance and the board membership.

The audit also recommended that the Department of Environment, Land, Water and Planning undertake an analysis of best practice options for the provision of public liability/professional indemnity insurance to the local government sector and develop guidance on risk management for the local government sector.

A number of recommendations were made for councils in general and for the audited councils in particular. The audit noted that the majority of councils that procure their PL/PI insurance through LMI have a limited understanding of their PL/PI risk exposure and instead relied on MAV to determine sufficient and appropriate levels of cover. It recommended that councils should regularly review their risk profiles and insurance arrangements and consider tendering for insurance to ensure they are getting value for money.

The Auditor General's report is available here.

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