What is the role that the ICMIF currently plays in the global insurance and reinsurance landscape?
Catherine HOCK: ICMIF is the carrier of a vital message about securing our socio-economic future. More than 900 million people worldwide are protected by mutual or cooperative insurers and when you also add on the millions of individuals in emerging countries who rely on informal, community-run insurance schemes, the true impact of these values-based insurers becomes apparent.
Believe it or not, this message needs to be reiterated at local, regional and global levels. ICMIF’s role, in a nutshell, is to remind policymakers, regulators and supervisors worldwide that mutual and cooperative insurers matter when it comes to protecting economies and societies and that they should be consulted the same way as proprietary insurers.
In the debate on how to stimulate growth at a macroeconomic level, ICMIF points to the cooperative/mutual model’s ability to drive growth and thus participate in the reshaping of a more sustainable (and equitable) global economy. In fact, our latest figures show the mutual insurance sector is the fastest-growing part of the global insurance industry since the onset of the global financial crisis and has almost 30% of the market.
The trend is encouraging, though we should not lose sight of the fact that a considerable amount of mutual and cooperative insurers are small and medium sized. To global regulators and supervisors, we therefore advocate a cautious regulatory approach that refrains from generating additional risk or causing the financial system to jeopardise its current pluralistic ownership or penalise existing business models. There should be particular regard for the national/regional, small and medium sized, and mutual or cooperative, operators, which cater to their policyholders/members’ needs and invest part of their surplus in the communities.
Mutuals and cooperative insurers are traditional players in some countries while in other emerging markets the concept is yet to be developed. Could you please highlight some of the advantages that this type of organisation brings? Where are most of your members located?
C.H.: You’ve raised an interesting aspect: cooperative/mutual insurers don’t exist everywhere – even in Europe they can be prevalent in some countries but in others are non-existent because they are not allowed. Firstly, it’s important to consider the role of political and cultural preferences, regulatory intervention and historical contingency. In Europe, for instance, many mutuals were set up by farmers or by professionals (from all walks of life), and others came out of social movements and contributed to the development of social protection. Many were formed by a group of individuals but some by political leaders, like the Emperor Franz Joseph I of Austria. The European mutual and cooperative insurance association AMICE has compiled the stories of a more than 30 of its member companies, which makes for very interesting reading. On the other hand, ICMIF’s global ranking of the 500 largest mutual and cooperative insurers shows an average age of 93 years, with some having been around for over 200 years. In terms of legal structure, the majority of the older companies are “mutual” insurers. In comparison, cooperative and non-profit insurers are a relatively newer model of insurance business. Takaful insurance is by far the youngest form of insurance: the five Takaful insurers featured in the Global 500 have an average age of just 22 years.
There is also a clear divide between developed and emerging markets when it comes to the market share of cooperative/mutual insurers. One third of our 290 members in 72 countries are based in the emerging world. Whilst the average market share of cooperative/mutual insurers in developed countries around the world is 31%, it is only 4 % in developing markets. In fact, countries without a mutual insurance-enabling law are low-income, highly populated countries.
This situation is lamentable given that the mutual model brings a competitive and attractive alternative to the mainstream, shareholding model; the mutual model focuses more strongly on stakeholder participation, evoking the early days of individuals getting together to mutualise the cost of protection.
In terms of regulation, are there any barriers to the development of the mutual business? If yes, we are interested in finding out the rationale behind this.
C.H.: As mentioned before, there are countries, even in the EU, where the insurance law does not provide for the creation of mutual insurance companies; this undoubtedly constitutes a barrier to entry and as such, it was picked up by the OECD trade department in its first Service Trade Restrictiveness Index (STRI) for financial services, which was released in 2014.
There is not a single explanation, for each situation is unique. In some cases, it could be a lack of information or misinformation on insurance or previous bad experiences with similar insurance carriers or products. In cases where the provisions relating to mutuals are excluded during the revision of the Insurance Act, we are still doubtful whether this indicates a concrete decision by the Government that the sector does not need to be regulated because of its smaller size. Be that as it may, we have observed that this regulatory vacuum may prompt players to devise their own models that carry one or more specific features of a mutual. This represents both an opportunity and a challenge which in some emerging countries is taken on by some motivated actors.
How would you comment on the difference between the mutual business model and the Peer to Peer model?
C.H.: There are certain commonalities between the mutual insurance and Peer to Peer insurance schemes, at least the ones who communicate about their business model. Swiss Re’s Sigma report on mutuals proposes a good classification of existing schemes and describes the similarities, including policyholders’ /members’ rights and their stake in any surplus. A difference, at least for the time being, is that most P2P schemes are merely intermediaries, not risk carriers, which rely on traditional insurers or reinsurers for capital. But most importantly, unlike mutuals, P2P platforms are usually privately owned and financed by venture risk capital.
Are mutual / co-operative insurers prepared for the future, from the digitalisation point of view?
C.H.: They are indeed prepared, but always on the basis that any investment in digitalisation should be aligned with their members’ needs. The members of ICMIF range from large market leaders to niche, affinity-based insurers, and most are small/medium-sized. So there are many different ways in which our members approach digitalisation: the large ones have set aside a specific budget for it and are already well advanced and smaller organisations are likely to go down that route later when the costs come down. Our smaller members understand their niche market and still strive to build relations based on quality and trust with their member-policyholders. Where digitalisation supports these relationship-building efforts, there are significant moves to embrace new technologies. This is particularly true in emerging markets that are doing more with digital technologies because they are more agile.
Bridging the protection gap is a recurring theme at most of the industry events in recent years. How are ICMIF’s members supporting this?
C.H.: ICMIF can proudly say it has put its money where its mouth is in dealing with this issue in an efficient and consistent way. In fact, ICMIF has been actively supporting the reduction of the protection gap since the 1960s.
In January 2015, we launched the 5-5-5 Mutual Microinsurance Strategy to help mutual microinsurance reach its full potential scale in five emerging markets with the goal of having a positive impact on the lives of millions of low-income households.
The five countries (Colombia, India, Kenya, the Philippines and Sri Lanka) were selected on the basis of several factors including our members’ presence and their outstanding work in their respective countries. Two years after the launch of this programme, over a million individuals (1,294,089 individuals / 258,885 households) who were previously uninsured are now insured by a mutual or cooperative insurer thanks to this robust programme and the support of a number of ICMIF members. If you are interested in reading stories or watching videos, I invite you to consult our dedicated page at http://www.icmif555.org/
We are also proving advocacy support with regards to regulation for mutual/ cooperative insurers in countries where regulation is not favourable. Through advocacy we are promoting enabling regulation for mutuals/ cooperatives, trying to create a space for mutual insurers and the key role mutuals are playing in insuring the poor and the underprivileged.
From the consumers’ perspective, what is the difference, if any, between being insured by a listed insurance company as opposed to working with a mutual or co-operative?
C.H.: I think the best way to answer that question is to let consumers speak. The Dutch national insurance association has carried out an independent survey which screened 48 insurers on six aspects of customer service: customer focus, expertise, customer contact, clarity, trust and satisfaction. The eight companies that came first were all mutual / cooperative insurers. The same type of survey commissioned in the UK by AFM, the Association for Financial Mutuals, showed that mutual insurers were given a ‘Net Trust Score’ of +32%, compared to financial public limited companies, which registered -5%. We also know from extensive reputation audits carried out in 2012 and 2016, that our sector is strongly associated with sustainability and long-termism by multiple stakeholders, including consumers. The customer experience for those who buy their insurance from cooperative/mutual insurers is often characterised by a more personalised experience, employees who care and better value for money. These aspects are what set cooperative/mutual insurers apart from many stock company insurers, and this is borne out by customer retention rates as well as Net Promoter Scores, which regularly far exceed the industry averages.