The mutual insurance sector has undergone a modest recovery in recent years, yielding gains in direct premiums written. So reports Swiss Re in its latest sigma study, “Mutual insurance in the 21st century: back to the future?”
Mutual insurers’ share of the insurance market increased to 26 percent of direct premiums written in 2014 from 24 percent in 2007, reversing declines of previous decades. But Swiss Re warns the segment faces challenges, including adapting to new risk-based capital requirements and more stringent corporate governance arrangements, which could put some mutuals at a competitive disadvantage.
Mutual insurers must embrace technological disruption, the report notes. Exploiting digital technology such as smart analytics and social media, will enable mutuals to better serve the interests of their member-owners, while their ownership structure should enable mutuals to keep insurance affordable for some individuals and risks.
The primary purpose of mutual insurers is to provide risk protection coverage for its owner-members, rather than to make profits or provide returns to external shareholders as in the case for stock-based insurers. In recent years, cumulative premiums written by mutual insurers have outpaced those of the wider insurance market, with much of the outperformance concentrated during the height of the financial crisis in 2008-09.
“That mutuals’ relative premium performance did not reverse once economic growth resumed after the financial crisis, suggests a degree of permanence to the segment’s recovery,” says Kurt Karl, chief economist at Swiss Re. “Some mutual groups have expanded internationally in recent years. And new mutuals have been established in a number of markets, another indication of the segment’s renewed popularity.”
However, while mutuals’ share of the global insurance market has increased modestly since 2007, it remains well below previous highs. For example, in the life sector, the share of global premiums of life mutuals was 23 percent in 2014, well below levels of around 66 percent in the late 1980s and early 1990s, before a wave of demutualizations in a number of countries.