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Mutual sector is prospering, despite regulation challenges

“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