PensionsApr 29 2019

Mutuals have something unique to offer

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The financial services industry is constantly looking for ways to present itself as consumer-friendly, with new bells and whistle features added to products to give the impression of better value for money, or new operational designs that aim to “put the customer at the heart of everything we do”.

Many of these initiatives are well-intentioned, but only few succeed.  

Often this is because there is no ready market for the idea: as an industry we build products and then try to fit customers to them, rather than the other way around.  

Often as well, people doubt the sincerity of the offer, or assume that its real intent is to line the pockets of the owner.

Well, as an industry insider, I can reveal that the last point is absolutely always the case - and why should it not be?  

All companies are in business to make money for their owners, but not all owners are the same.

Take insurance as an example: the owners of a stock market listed insurer are investors who have researched the company for how much of a return they can extract: often they are overseas shareholders, or big banks, or other insurance companies; increasingly, shareholding is a transitory thing dictated by complex algorithms that buy and sell shares in seconds.

Little wonder then that the average lifespan of a listed company today is so short.

But there is another type of owner: a member of a mutually-owned business.  

In these cases, the customer becomes a member of the organisation, and so one of its owners. This means to serve the best interests of the owners, also means doing the right thing for the customer.

If a person is buying a long-term insurance product or a pension, or taking out a mortgage for 25 years, they want to know that the company is around for the long-term, and that the money that they pay in is directed to getting the best return or cover for them, not for a wealthy shareholder.

Certainly, our research indicates customers are increasingly attracted to the mutual model.  Just before the 2008 financial crisis, mutual insurers and friendly societies accounted for less than 5 per cent of the UK insurance market.  

Since then, the mutual sector has doubled its market share, to over 10 per cent today, and this resurgence shows no signs of slowing.

Should the economy tip into recession, as many commentators predict if and when we leave the European Union, the mutual sector has grounds to be optimistic.

Mutuals have achieved this transformation and up-lift in prospects, by taking a long-term view, by designing products with the customer in mind, by excelling in customer service, and by exploring more ways of delivering better value to their customers.  

By being loyal to their customers, and their staff and the communities they work in.

The modern insurance market is complex and highly regulated, new technology requires significant funding, and there are enormous economies of scale for the biggest of players: these are all challenges for the relatively smaller, mutual insurers.

But that has not stopped them winning awards for innovation, nor has it prevented them producing higher returns than their PLC counterparts, or from paying a higher proportion of claims.

So, as markets become less predictable, and as consumers become more demanding, it is more likely that what they want from their financial services provider, is for it to be a mutual.

Martin Shaw is chief executive of the Association of Financial Mutuals