What is a Mutual?
Insurance aims to offer risk reduction, where multiple stakeholders are involved, all of whom expect profit. Mutuals have no shareholders and are not motivated by the expectation of profit. Instead, they are owned by customers – their members – for their sole benefit.
Why Mutuals?
Mutuals sustainably reduce the cost of cover by improving the quality of risk
Rather than outsourcing their risk transfer needs to a third party, it can be more effective for members to pool and directly deal with this risk within a Mutual framework. The collective ownership and responsibility of this primary layer of risk naturally bring:
- A focus on risk selection, implemented through establishing minimum risk management standards to gain entry to the Mutual.
- A direct vested interest in risk management and mitigation.
- A reduced frequency and severity of claims.
These features have a transformative effect. In addition, self-serving in their own Mutual can strip out substantial frictional costs and corporate entities' profit demands to their third-party shareholders.
Benefits of a Mutual
The benefits of this model cover a range of significant business aspects, including:
- Ownership: Each Mutual is owned entirely by its members, and there are no external shareholders with profit demands. By selecting its members, they reduce the incidence of poor performance or bad practice, which can drive up costs.
- Policyholder Participation and Control: With a board consisting primarily of members, Mutuals control decision-making in a way that best serves their membership. When the organization feels it would be beneficial, it may include a minority faction of independent directors or representatives.
- Lower Costs: Mutuals often provide more affordable insurance premiums than traditional insurance companies. Members can get the coverage they need at close to cost. Mutuals aren’t liable for corporation tax on surpluses generated by their trading activity and are not subject to insurance premium tax.
- Alignment of interests: With the Mutual being owned and controlled predominantly by members, its primary focus is on meeting the needs of those members and ensuring they are adequately served. Claims are settled equitably and quickly, without red tape.
- Increased Transparency: Ownership and control bring transparency, giving the board visibility into all revenue, expenses, and claims. Data transparency means that emergent risks, trends, and root causes are analyzed, which helps drive down the cost of claims – and, therefore, the cost of cover.
- Enhanced Risk Management: With Mutual ownership composed of the insured businesses, they often have a clearer understanding of the risks involved in their line of work. This knowledge can lead to better risk management strategies and policies.
- Best Practices: Local Mutual ownership can effectively utilize local and global best practice information. Analysis of claim trends and root causes provides lessons that can be applied to improve processes and coverage. This can be supplemented with global best practice knowledge through international partners and the local and international marketplace.