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| Prudential Management |
 Prudential management of the scheme is the responsibility of the MAV Insurance Committee and is undertaken with the aid of actuarial and investment advice.
Cover: Policy Wording
The Association agrees to indemnify "The Insured" in accordance with and subject to the terms, exclusions, limitations, extensions and conditions contained in or endorsed on or otherwise expressed in the Primary Insurance Policy for Broadform Liability Insurance. It should be noted that the policy wording can change from year to year and a claim for a past year needs to be examined in the light of the policy wording for that year.
Download the Victorian Primary Insurance Policy for 2005/2006. (109k.)
Cover: Sums Insured
When the scheme began the sum insured for public/products liability was $100million and for professional indemnity $30million. To ensure that members are adequately covered a number of increases in sums insured have been negotiated over the years.
The sums insured in 2004 are $240 million for public/products liability and $200 million for professional indemnity.
Each member is covered for claims up to this level in a year.
The total Sum Insured is a combination of the Scheme's own net retention, plus Re-insurance/Excess insurance effected by the Scheme on behalf of its members.
Effective from 30th June 2006, the Sums Insured were increased to $400M for both Public and Products Liability, and $300 for Professional Indemnity claims.
The Victorian and Tasmanian Water Authorities each have $500M for both Public and Products Liability. They also have $300M each for Professional Indemnity claims.
Cover: Distribution of liability (risk)
Under CMP the insurance cover has been achieved by using two different risk distribution models. Re-insurance is a major component of both models and is used for protection against a single major catastrophe and/or the aggregation of many small losses.
Model 1, spreads the risk between:
- the individual member - a minimum excess of $10,000 (as from 30/06/06)
- the members collectively - the scheme now meets individual claims up to $5million
- re-insurance and excess insurance underwriters- meet claims above $5million.
Under Model 2, known as full re-insurance, the individual member meets the excess obligations and the re-insurer meets all claims above the member's excess.
CMP fully re-insured all the scheme's liability (i.e. claims between the members excess and $5m.)
Full re-insurance becomes attractive when the cost of the re-insurance premium is comparable with the estimated cost of claims transferred from the scheme to the re-insurer. An added attraction is that annual "guaranteed surpluses" can be negotiated with the re-insurance underwriter as part of the package.
Final responsibility rests with members
The ultimate responsibility for CMP's financial viability rests squarely with the members themselves. The Deed of Establishment outlines the liability and entitlements of participants. Clauses 6.4 and 6.5 set out what is referred to as "a call on the councils". In simple terms this means that a shortfall in the scheme's funds allows the Municipal Association to give notice to councils requiring further contributions.
Investment strategy
With the collection and turnover of large sums of money a sound investment strategy is essential. This strategy is reviewed as required in order to reduce risk.
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