The Australian motor dealership market has a problem, but a new entrant believes it has a remedy.
Mainstay Dealerships Limited, a Discretionary Mutual Fund created exclusively for new car franchise dealerships, has launched to make sure that dealerships that fund the risk are also the ones to benefit when the numbers go well.
The mutual operates on a member-owned basis, where participating dealership members collectively contribute to a shared risk pool and are protected according to the mutual's rules and governance. It is a model that stands in deliberate contrast to the traditional arrangement, where those protected must ultimately generate financial returns for insurer shareholders, including offshore companies, with little connection to the Australian dealerships creating their profits.
"Mainstay Dealerships is a discretionary mutual built solely for new car franchise dealerships," Adam Dalton, Chief Executive Officer of Mainstay Dealerships, told Insurance Business. "It protects the dealership's key assets and trading risks using an insurance-alternative approach, backed by reinsurance and run by people who understand dealerships, with outcomes designed to benefit members rather than external shareholders."
The rationale behind the launch is rooted in a long-standing frustration familiar to brokers and dealer principals alike. Over recent years, dealerships have experienced sharp movement in prices driven by insurer capital cycles, weather losses, and global portfolio performance, often with little correlation to the dealers own claims history.
A dealership even with a clean record and well-managed risk has no guarantee of stable or transparent insurance pricing from one year to the next. When catastrophe losses occur on the other side of the world, or an offshore head office recalibrates its appetite for Australian motor risk, the cost lands on the dealership regardless. But when the portfolio performs strongly, the gains flow elsewhere.
Climate-related losses, capital volatility, and regulatory change have compounded the pressure on traditional protection models. Dalton pointed to the depth of experience that informed Mainstay's design. "More than ten years of direct involvement in dealership protection programmes has shaped the mutual's founders’ focus on discipline, transparency, and sustainability rather than short-term pricing," he said.
The Mutual Manager’s team brings experience across dealership underwriting, claims management, and risk governance in both the Australian and Lloyd's markets, a background that Dalton argued is essential to making the mutual model credible in a market that has seen less disciplined versions come and go.
No discussion of mutual structures is complete without confronting the word that tends to give brokers pause: discretionary. Only financial service providers with an appropriate Australian Financial Services Licence that includes miscellaneous financial risk products/mutual risk products can advise on discretionary protections. Unlike a conventional insurance product, a mutual is not legally obliged to pay every claim under a contract of insurance rather it must act in accordance with its Constitution which is the overarching agreement between the member and the Mutual as filed with ASIC. The Mutual’s protections and operations have been deliberately structured to operate as closely as possible to a traditional protection arrangement while retaining the benefits of a member-owned model. Protection wording closely mirrors that of a conventional insurance policy. Underwriting, claims assessment, and governance follow established standards. Tier one reinsurance partners provide protection against severe and catastrophic losses.
So when would protection discretion actually be used, and when would it not?
"Discretion may be exercised where the intent of the protection is clear, but the PDS and Protection wording is genuinely ambiguous or silent," Dalton explained, "and where applying discretion benefits the membership as a whole rather than a single dealership at the expense of others."
He was equally direct about the limits of that discretion. A dealership suffers a loss following an event clearly within the spirit of the protection, but the loss arises through a scenario not expressly contemplated when the wording was drafted, perhaps a new operational process or asset type that did not exist when the rules were finalised. If the intent is clear and the decision would be applied consistently across members, the board may determine that discretion should be exercised in the member's favour.
The reverse scenario is just as instructive. "If a claim clearly falls outside the scope of protection, in accordance with the PDS or Protection wording, discretion would not be exercised to pay that claim," Dalton said. "Paying such a claim would effectively shift the cost onto other members and undermine the integrity of the mutual."
The guiding principle, as Dalton described it, is consistency and fairness across the membership, with outcomes aligned to the original intent of the protection. Discretion allows the Mutual to handle genuine grey areas, not to rewrite rules in anyone's favour or to decline valid claims as a cost-saving measure.
Mainstay Dealerships Limited operates under a formal governance framework, with ultimate oversight sitting with the board of the mutual, which includes dealership representation. Day-to-day operations are carried out by the Manager under board-approved delegated authority.
Key elements of that framework include:
Reinsurance sits at the centre of the stability equation, protecting both the mutual and its members from volatility that would otherwise threaten long-term sustainability. The mutual is selective about membership, and underwriting is disciplined. Risk quality is actively managed rather than passively accepted as the Board’s primary obligation is the best interests of its accepted members.
One of the more telling design choices in the Mainstay model is its approach to the broking market. Many industry mutuals have historically either bypassed brokers or treated them as a compliance inconvenience. Mainstay has taken the opposite position: brokers are compensated for their involvement and are considered integral to success.
In practice, the relationship works across three stages. A retail broker identifies a new car franchise dealership that may benefit from the mutual and makes the introduction. Mainstay then works directly with the dealership, with the broker involved, to assess the risk and determine suitability. Once the dealership becomes a member, Mainstay manages the protection and ongoing engagement while the broker continues to support the dealership across its broader programme.
"The key difference is alignment," Dalton said. "The broker retains their client relationship, the dealership receives protection, and Mainstay manages the mutual for the collective benefit of its members rather than shareholders."
When a claim arises, the dealership deals directly with Mainstay's claims team, with brokers kept informed and involved where the claim interacts with other covers. The intent is speed, consistency, and specialist handling, without the dealership feeling as though it has been handed off to a call centre with no context for its business.
For a mutual positioning itself as a long-term alternative to the traditional market, the definition of success matters.
"Three to five years out, success for members is stability and predictability rather than chasing short-term savings," he said. "That means contribution levels that move more gradually than otherwise and are driven by the mutual's actual claims experience, not sudden market swings or offshore capital pressures, where members have financial transparency through access to the Mutual’s Annual Reports and also have a direct say through attendance at their AGM."
From a claims perspective, success means timely, professional handling with consistent outcomes supported by strong governance and reinsurance capacity. Where the mutual performs well, any surplus is retained for members, whether through stabilising future contributions, investing in risk reduction initiatives, or, where appropriate, returning value to members directly in a fair and equitable manner.
The contrast with the traditional model is deliberate:
"The objective is a sustainable, member-aligned outcome over time," Dalton said, "not maximising short-term profit."
For brokers with dealership clients who have spent years absorbing price volatility they did nothing to cause, that is a proposition worthy of a conversation.
More information is available at www.mainstay.coop.
This article was produced in partnership with Mainstay Dealerships Limited
