The Association of Financial Mutuals (AFM) will meet Treasury officials to further explore its offer to play a significant role in assisting the Government's welfare reforms.
A meeting has been arranged for next week to discuss the proposal following an initial letter to the Chancellor prior to the budget.
Speaking at the Protect conference, Martin Shaw, CEO of the AFM, confirmed the negotiation process had only just commenced, but believed there was cause for optimism that it may be taken up.
"We have proposed that some of the welfare state services which are provided might actually be outsourced to the mutual insurance industry," he said.
"It's very early stages, but the Government has said it is open to new ideas, and inparticular how it can get mutual and co-operative societies involved in certain areas of what used to be public services.
"So hopefully we are starting with an open door on ideas, if not the delivery of those ideas," he added.
The AFM is arguing that, having done so before the formation of the welfare state, its members still retain the heritage and knowledge of how to work with people around the kind of benefits services which are now provided by the state.
Its letter to the Chancellor suggests: "There is scope to contract out certain state benefits to the mutual insurance sector. For example, the sector has significant experience of running products that sit alongside statutory sick pay and long term invalidity benefits - and all the evidence suggests mutual companies can operate such schemes more cost effectively and with better claims handling and monitoring. Contracting out this work would enable employers to offload sick pay costs to insurers, individuals to have sick pay schemes tuned to their own circumstances, and generally reduce exchequer costs."
Shaw explained how this process might work: "Take things like statutory sick pay or invalidity benefits. At present employers pay for those through National Insurance (NI) payments, with those payments being collected by the Government and then paid out through their benefits system.
"Our proposal is that you can take that out of the NI system, allow employers to find their own insurance policies which can be tailored to the needs of the individual, and therefore take out the stress for the employer of the way they interact with the benefits system.
"It will also make the system itself cheaper to run and more effective for the individual, actually with those who understand how to get people back to work more effectively," he added.
With its members holding around £80bn of capital, largely in property, the AFM also proposed to Government new ways of being able to invest that money in, what Shaw describes as "meaningful, tangible products or projects, such as credit unions or housing associations, or in something which has infrastructure benefits like the Birmingham to London fast rail link."
