The chief executive of the Association of Financial Mutuals loves his job, but he regrets not staying long enough in previous regulatory positions he has held.
Martin Shaw became chief executive of the AFM in 2010 as a result of a merger between the Association of Friendly Societies and the Association of Financial Insurers.
Before that, Mr Shaw worked at the then Financial Services Authority, now the Financial Conduct Authority.
“Perversely, sometimes I wish I had stayed at the regulators longer. I was at the [FSA], but I was only there for 18 months and I was headhunted to work for the Association of British Insurers, which was great and more money, but I often felt I did not give regulation long enough.”
He adds: “What I hoped when I started working there is, having been a practitioner for a long time, to offer real value into the way regulators work.”
The AFM is made up of 49 members and is a trade association supporting mutual organisations by helping them improve their performance, lobby with regulators and the government, and looking to promote the value that mutuals have in the market today.
Mr Shaw ended up at the AFM because of the love he developed for building societies during his tenure at Bradford and Bingley.
“My first job was working for a small bank, which was really productive, but around that time they were making some changes to the law around building societies, which meant there were lots of really interesting options coming out there.
“Having spent 14 years working for a building society, I had always valued the mutual business model and the opportunity to work within mutuals again.”
He adds: “It is also an opportunity, from a personal perspective, to run a business and have a greater opportunity to manage the way that our part of the insurance sector evolved over time.”
A mutual is an organisation that is owned by its customers. As well as being a policyholder with the rights that one might have from a consumer contract perspective, a member also has a number of rights and obligations as a part-owner of the business.
A member has the right to vote at annual general meetings and ultimately a share to the value of the business. If your mutual was to demutualise or wind-up, then whatever proceeds were leftover from that business would go to its owners just as they would for any other business, explains Mr Shaw.
Mr Shaw says: “In 2008, the mutual sector [represented] less than 5 per cent of the insurance market and today it stands at over 10 per cent.”
He adds: “So, that is a sure sign of prospering in a market for which insurance has been difficult and many large insurers have never really recovered from the recession of 2008-09.”
Mr Shaw highlights the difference between taking out a cash plan with a standard listed company versus a mutual.
“A typical PLC insurer would see the first three pence going out in dividends for every £1 of premium paid in.”
He adds: “In effect, if you think about how you collect premiums from customers, you are always going to be less efficient as a non-mutual because the first 3 per cent from the premium is lost from the business straight away.”
According to Mr Shaw, the trend of “demutualisation” that occurred in the 1990s no longer persists.
Demutualisation is a process that changes a mutual or co-operative association into a public company by converting the interests of the members into shareholdings.
“All the building societies and companies that demutualised over the last 30 years, none of them are now independent. They are all parts of a larger group, mainly a bank,” he says.
Standard Life demutualised in 2006 and was listed on the London Stock Exchange.
Mr Shaw says a key challenge facing the AFM is how to approach regulation and ensure a high degree of corporate governance.
“We are constantly looking to make sure that regulation is proportionate, that it recognises differences in the business model and therefore it doesn’t in an unintended way produce adverse consequences for mutuals,”he says.
Corporate governance is a challenge for mutuals because they do not have external shareholders and mutuals are often perceived to have less independent challenge into the way that they run their business, he adds.
The AFM is in the process of establishing a new charter for its members to show what mutuality means from the customer’s perspective.
Mr Shaw says: “The AFM board has agreed to the development of a new AFM charter, which is consumer-focused and evidence-based, and which we will be unveiling after the summer.”
He adds: “The substance of the charter will look at how we design and deliver products that are accessible to all, with a focus on fair pricing, competitive performance, high standards of service, and which inspire trust.”
Saloni Sardana is a features writer at Financial Adviser and FTAdviser.com
