Successful mutuals embrace not-for-profit philosophies, which focus on core social issues. Product offerings and locally led community sponsorships are directly linked to these issues. This approach promotes stronger engagement and brand awareness and is usually managed through corporate-owned investment frameworks. Typically, face-to-face distribution is used as a catalyst for local connectivity. Show
Mutuals serve as a curator between members, local businesses and the community through:
The latter group is particularly important given the societal attention being paid to income inequality and the savings and protection gaps that were exacerbated by the pandemic. In addressing underserved market niches, mutuals often use social KPIs to measure their impact. Those KPIs can include the number and percentage of insureds who are:
Individuals in these groups are often excluded from insurance services or struggle to access affordable policies. Social investment ratios are another common metric. This social KPI measures the resources insurers commit to information, education, communication and prevention in the local community, for which no direct financial returns are expected. It’s worth noting that many mutuals select their community initiatives by measuring either the direct or indirect returns on their investments. Here again, purpose and financial performance are not mutually exclusive. The mutual maturity modelFollowing our research, we created a mutual maturity model based on the core competencies of market success for organizations, including:
We used these core competencies to gauge overall maturity of mutuals in six markets – the US, Canada, the UK, France, Switzerland and Australia. Our findings show that Australia, Switzerland and the UK are the most mature markets, while US mutuals lag, particularly in the area of providing value-adding services. The bottom line: the moment for mutualsAs with stock carriers, mutual insurers find themselves in a unique position in the post-COVID-19 market. Indeed, now is the time for mutuals to be bold with their growth strategies, identifying new opportunities where their purpose-led brands can gain traction and new segments they can serve. They must seek to harness the differentiating power of their purpose and customer-centricity to meet the moment. Thanks to the increased awareness of the savings and protection gaps, economic inequality and the emergence of stakeholder capitalism, all insurers – but especially mutuals – can demonstrate their value and relevance at greater scale than ever before. A privately-held insurance company that is 100% owned by its policyholders What is a Mutual Insurance Company?A mutual insurance company is a privately-held insurance company that is 100% owned by its policyholders. Mutual insurers are established with the sole purpose of providing its members with insurance coverage.  Mutual insurance companies are unique because the policyholders select management, and any profits are either reinvested into the company or paid out to policyholders in the form of a dividend. Like other insurance companies, mutual insurance companies make investments to meet the cash flow demand from its policyholders. History of Mutual Insurance CompaniesThe mutual insurance company concept originated from 17th century England when individuals sought coverage due to loss from fires. However, the mutual insurance industry officially began in the U.S. in 1752 when Benjamin Franklin founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Today, mutual insurance companies are in practically every country in the world. Understanding Mutual Insurance CompaniesMutual insurers continued to grow since their creation, due to several factors, including: 1. Overall goalMost insurance companies aim to maximize profits, but the overall goal of a mutual insurance company is to provide insurance coverage to policyholders at or near cost. When profits are generated, they either pay the policyholders a dividend or reinvest the profits into the company. 2. Investment strategyMutual insurance companies maintain a certain level of capital to meet the needs of policyholders, so they have a much longer investment view. As such, they usually invest in lower-yielding conservative investments. It is worth noting that because mutual insurance companies are privately held, it is usually difficult to determine the solvency of the company. 3. Income sourceThe main source of income for a mutual insurance company is the insurance premiums that policyholders pay for coverage. Due to the nature of the business, they are restricted in their ability to diversify income sources. There is another critical mechanism that is built into a mutual insurance company if the company selects to go public – demutualization. Demutualization is the process in which policyholders become shareholders, and the company begins to trade on a public exchange. When a mutual insurance company converts to a stock company, they enjoy greater flexibility and access to capital, which allows them to grow more rapidly. Stock vs. Mutual Insurance CompanyThere is also something called a stock insurance company, which is a company that is solely owned by its shareholders. Both companies offer insurance, but there are some differences that make each very distinct from each other. They include: 1. Goal of the companyThe main goal of a mutual insurance company is to maintain enough capital to meet the needs of its policyholders, while the goal of a stock insurance company is to maximize profits for shareholders. 2. Ownership of the companyMutual insurance companies are solely owned by policyholders, while stock insurance companies are owned by shareholders. In a stock insurance company, policyholders have no control over the company’s management. 3. Earnings distributionBoth mutual and stock insurance companies usually provide some form of distribution; however, the distributions are structured somewhat differently. In a mutual insurance company, distributions can either be used to pay policyholders so they can reduce future premiums or be reinvested into the company. In a stock insurance company, distributions can either be paid to shareholders, used to pay down debt, or be reinvested into the company. 4. InvestmentsSince the objectives of stock and mutual insurance companies are different, their approach to investment is slightly different. A stock insurance company is consistently under pressure to maximize profits for shareholders, so they tend to pay attention to short-term results. As such, they will usually invest in higher-yielding, riskier assets. On the other hand, a mutual insurance company is more long-term focused, which usually leads them to invest in more conservative assets. 5. Risk toleranceStock insurance companies offer policyholders greater stability because more options are available to them to generate earnings. In contrast, a mutual insurance company heavily relies on policy premiums as their main source of income. Examples (in Canada)There are several mutual insurance companies in Canada, and the industry continues to thrive in such a financial environment. The three largest, by market share, include:
Globally, there are about 400 mutual insurance companies, including 62 in Canada. Additional ResourcesCFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:
What are the two distinct characteristics that distinguish mutual insurance from stock insurers?In a mutual company, policyholders are co-owners of the firm and enjoy dividend income based on corporate profits. In a stock company, outside shareholders are the co-owners of the firm and policyholders are not entitled to dividends. Demutualization is the process whereby a mutual insurer becomes a stock company.
What is a key difference between a stock insurer and a mutual insurer?The main difference between stock and mutual insurance companies is ownership. A stock insurer is a corporation owned by its shareholders. They're either publicly listed or privately held. On the other hand, mutual insurance companies are owned by the policyholders.
What is a distinguishing feature of a stock insurer?The main difference between a stock insurer and a mutual insurer is the form of ownership. A stock insurance company is owned by its shareholders. It may be privately held or publicly traded and a stock insurer distributes profits to shareholders in the form of dividends.
What is the main difference between a stock insurance company and a mutual insurance company quizlet?A stock insurance company is owned by its shareholders and distributes profits to shareholders in the form of dividends. A mutual insurance company is owned by its policyholders.
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What are the two distinct characteristics that distinguish mutual insurers from stock insurers?
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