Councils may move to spread risks: The MMI affair

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COUNCILS' finance chiefs meet in London next week to discuss how problems like those posed by the demise of Municipal Mutual Insurance can be avoided in future, writes David Connett.

A leading proposal will be the formation of a new mutual association under greater control of local authorities.

Another proposal will be for councils to assume a larger share of the risks. District councils will be pressed to spread their policies across more companies to avoid the potentially catastrophic effects of 'having all their eggs in one basket', one expert said.

The local authority associations which met after the MMI announcement said they 'greatly regret' the breakdown of takeover talks. The Association of County Councils, the Association of District Councils, the Association of Metropolitan Authorities and the Convention of Scottish Local Authorities wanted an urgent meeting with MMI tomorrow.

They welcomed MMI's offer of talks to safeguard the authorities' interests and moves to transfer its business for personal customers to other insurers. There was relief also that there had been no immediate suspension of cover.

Martin Pilgrim, under-secretary for finance for the Association of Metropolitan Authorities, said although it might mean higher council taxes the problem should be seen in perspective. 'Councils spend 1 per cent of their incomes on insurance. In the context of local authority budgets it is not the end of the world.'

Jack Straw, Labour's local government spokesman, said: 'It is a very serious situation which may cost local authorities millions, and may leave some local authority activity uninsurable. Because the Government's culpable in this situation, it ought to mount a rescue.'