What does it mean to be a Member of a Mutual?

June 11, 2023
Our Ark Mutual

A Mutual is a business structure that places customers at its heart.

While many organisations claim to put customers at the centre of everything they do, with a mutual it’s the legal structure of the organisation.

What’s a Member?

Mutuals have members who are both customers and owners.

Members = Customer + Shareholder

Every customer of a Mutual is also a shareholder, this makes them a Member of the Mutual.

This is what makes the difference to how a Mutual operates.

Members have a different motivation compared to investor shareholders in publicly listed insurance companies.

Investor shareholders seek an increased share value or annual dividend payments as income from their investment.

And, as it’s an income earning investment, many investors expect the dividends to increase year on year.

Dividends are paid to investors from the profit generated.

Profit in insurance companies is created when the sum of the premiums paid by customers exceeds the cost of claims and operations.

Therefore, to satisfy investors seeking income from their shares, insurance companies must generate profit to deliver a dividend payments.

The expectation of dividends drives company behaviour

Insurance companies have three levers to generate profit:

1.     Increase the price of customer premiums

2.    Decrease the volume of claims paid, often by adding exclusions

3.    Decreasing operating costs, which can affect customer service

How is a Mutual different?

The collective structure of a Mutual creates alignment between the Members and the value of products and services offered.

The value is design to benefit all Members, so fair pricing for fair cover is a core principle. Having easier to understand wording ensures all Members understand what’s included, and what’s not.

Fair claims is also an aligned principle for a Mutual; supported by good customer service and, operational transparency.

Can a not-for-profit Mutual make a profit?

Yes, except its often referred to as the surplus.

Surplus is created after the operating costs and claims are paid. This surplus is retained for the benefit of all Members of the Mutual.

This means the surplus can be used for benefits such as:

·      Discounts on fees in future years

·      Broadening the product offering

·      Increasing the capital reserves to strengthen the Mutual

Mutuals – the better business model

At the heart of Mutual ethos is that what’s best for all Members comes first.

Our Ark Mutual is founded on the premise of fairness:

·      Fair pricing

·      Fair product inclusions & exclusion

·      Fair claims

Read the PDS that is right for your type of organisation to see if Our Ark risk protection products are right for you.

Talk to us to obtain a quote.

(Photo by Aaron Burden on Unsplash)