October 24, 2016
Mutual Insurance: Back to the Future?
After a wave of of de-mutualizations two-plus decades ago in a number of developed countries, mutuals are making a comeback.
Mutual companies, which are operated for the benefit of their member-owners and are not controlled by outside investors, have been experiencing a moderate period of growth following the recent financial crisis as policyholders have retreated from stock-owned institutions. Mutuals’ share of the world insurance market increased from about 24% in 2007 to a little more than 26% in 2014. Their share was much higher in the late 1980s and early 1990s, before a surge of de-mutualizations in a number of developed countries took place.
One of the challenges facing mutuals is new, risk-based regulatory capital standards and the introduction of tougher corporate governance arrangements that are designed to boost the resilience of individual insurers and curb excessive risk-taking. The requirements could put some mutuals at a competitive disadvantage. However, the biggest challenge to mutuals comes from digital technology, which is profoundly changing the competitive environment for all insurers.
Existing mutual insurers recognize the need to innovate, and some are on the front lines of change, promoting digitalization in all areas of operations. Some smaller, more traditional mutuals, however, still remain slow to adapt. The growing development of peer-to-peer (P2P) insurance platforms, which enable individuals to share risks among themselves in much the same way that affinity-based mutual insurers do, has also had an impact.
Find the full report here.