Briefing: Is this the beginning the end of the mutual?

Mutuals have a long history in insurance, with the first mutuals originating in London to cover losses from fire damage before spreading to the US.

Today, mutual insurance companies can be found in nearly every insurance market in the world, but is the future of the mutual insurer under threat?

We have already seen a number of UK-based mutual insurers snapped up by competitors, with LV= the most recent after its general insurance merger with Allianz, and the remaining business contemplating a sale of its life and pensions business units.

And this could spell bad news for consumers, with mutual insurers often rising to the top of customer satisfaction surveys.

The whole premise of mutual insurance is based on policyholders owning the business and having a share of any profits leftover once claims are paid.

Shareholder-owned insurers, meanwhile, take their profits and distribute them to hungry equity holders looking to line their pockets through dividends and increasing share prices.

This means that for every £1 paid out in claims there is £1 less to go towards profits and shareholder dividends, giving a financial incentive for the insurer not to pay claims.

Now of course, every insurance company will say they are in the business of playing claims, but the truth of the matter is that mutual insurers have much more incentive to do that and focus on customer experience and customer service, because they don’t have to worry about external shareholders demanding profits.

Financially, however, this approach can be damaging for an insurance business, and without a re-evaluation of the market away from price and into value, mutual insurers may find it difficult to survive and thrive as we move through 2020 and beyond.