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 business structure it’s a fundamental part of the legal structure.
Mutual businesses have members who are both customers and owners.
This means that every member of a Mutual is also a shareholder – it is this that makes the difference to how the organisation operates.
Members = Customer + Shareholder
Members as shareholders have a different motivation compared to investor shareholders in publicly listed insurance companies.
Investor shareholders in most publicly listed companies either expect increased share value or dividend payments each year, to provide an income from their investment. Plus, many expect dividends to increase, or at least remain the same each year.
Dividends are paid from the profit. With insurance companies, profit is created when the sum of premiums received is greater than the operating and claims costs.
So, in order to keep the dividends coming, publicly listed insurance companies seek to create the same profit, or more, each year.
This gives the company three strategic levers to increase profit to meet the dividend expectation:
1. Increase the price of policy premiums
2. Decrease the number of claims made, usually by adding more exclusions to the policy.
3. Decreasing costs to operate, which often affects customer service.
The collective structure of a Mutual creates alignment on the benefits to its members.
Mutuals provide member value such as fair pricing for fair cover, easier to understand policies, fairer claims, good customer service and operational transparency.
When there is profit after operating costs and claims are paid, this is retained for the benefit of members. Profits can be used to discount future premiums, broaden the cover offering and, be added to the capital reserve to strengthen the Mutual.
A better business model
In a Mutual, what’s best for members comes first.
This is why Picnic Labs embraces the mutual model – we provide “Risk Protection As A Service” for groups of businesses, organisations and individuals that seek better protection from sudden financial peril.
We’re returning the right business model to insurance and risk protection – one where customers are always at the heart.