11 minute read 27 Aug 2021

Mutual insurers can differentiate through purpose-led strategies, member centricity, value creation and social responsibility.

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Growth through differentiation: Four principles for mutual insurers

By Isabelle Santenac

EY Global Insurance Leader

Passionate transformation insurance leader. Inspiring the next generation of female leaders. Proud mother of three. Trail runner. Golfer. Skier. Loves traveling and cooking.

11 minute read 27 Aug 2021
Related topics Insurance

Mutual insurers can differentiate through purpose-led strategies, member centricity, value creation and social responsibility.

In brief
  • In our analysis of mutual insurers, we identified four core principles for differentiation and growth.
  • Purpose-led and long-term value strategies are critical to driving more innovation and stronger customer engagement.
  • Mutual brands are typically keyed to social and economic change across local communities and underserved segments.

Mutual insurers represent an important and growing sub-segment of the overall insurance market, with some of the most prominent and successful brands in the industry. Mutual insurers, which we at EY refer to as “mutuals,” are better capitalized than their stock insurer counterparts and grow at marginally higher rates, though they run underwriting losses some years due to their practice of paying dividends to policyholders.

Just as the strategic priorities of stock carriers are changing, mutuals also face an evolving landscape, with fast-rising customer expectations, new competitive threats and disruptive technologies – all issues at the top of C-suite and board agendas across the insurance industry.

To understand the most important imperatives for mutual and cooperative insurers and define just what sets them apart from stock carriers, EY conducted an extensive scan of the mutual market (pdf) during 2020. Specifically, we looked at how mutuals of all sizes and types devise and operationalize purpose-led strategies to differentiate themselves and accelerate growth. Indeed, mutuals seem uniquely well positioned in an era where purpose and long-term value creation have become strategic imperatives for the entire industry.

Based on analysis from the International Cooperative and Mutual Insurance Federation (ICMIF)1, mutual insurers account for approximately 27% of the global insurance industry market share. Over 5,000 mutual, cooperative and member-owned insurers generated more than $1.2 trillion in gross written premiums in 2017 and achieved a 30% growth in premiums in the 10-year period since the onset of the financial crisis (2007 to 2017), compared to 17% growth of the total global insurance industry.

Mutual insurance market impact

US$1.2 trillion

Gross written premiums for over 5,000 mutual and cooperative insurers worldwide

We conducted benchmarking surveys in more than 35 markets around the world, and engaged 140 participants, mainly senior executives from EY’s Insurance practice. We did a deep analysis of 10 mature mutual insurance markets and the market performance of more than 50 mutual insurers.

Our research scan focused on the areas that serve as a framework for mutual operations, including policyholder and member engagement, financial benefit, community orientation, value-add services, governance and funding structure, product and policy differentiation, and portfolio strategy and innovation.

From this research, we identified four core principles that differentiate mutual insurance companies from stock carriers:
  • Purpose-led strategies prioritize long-term thinking and value over profitability.
  • Member centricity requires owner engagement models unique from standard customer engagement models.
  • Value creation for core and peripheral member segments is critical to growth and innovation.
  • Social and economic change across local communities and underserved segments is fundamental to brand and purpose.

Collectively, these principles represent a strategic playbook for mutuals to find success in the dynamic, technology-enabled and purpose-led insurance industry of the future. This article explores the four principles and describes the mutual maturity model we developed based on the research. It also includes survey findings and panelist comments from a recent virtual EY event attended by more than 150 senior insurance executives.

EY global insurance mutual market scan

Our review of the global mutual insurance market reveals what sets mutual and cooperative insurers apart from stock carriers.

Discover more (pdf)

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Chapter 1

Purpose-led strategies

Mutual insurers must balance long-term thinking and value with near-term profitability.

Following the pandemic, more insurers are thinking beyond their bottom line and about their purpose in protecting businesses, people and communities from significant threats. Specifically, they measure performance in ways that account for stakeholders (e.g., customers, employees, the environment) beyond financial shareholders and investors. Such views are essential to mutuals, given their histories and structures.

Purpose-led strategies are not new to mutuals, but some are embracing and articulating them to a greater extent than in the past. Today’s strategies and operating models typically go beyond revenue generation to fill a service need within a specific community with alignment to a few common value creation pillars, including:

  • Human wellness
  • Member value
  • Societal impact
  • Ecosystem productivity

These pillars are being adopted by more insurers (and not just mutuals) as part of their core management frameworks, particularly as they develop purpose-led strategies, begin to report on their environmental, social and governance (ESG) performance and embrace the principles of stakeholder, or inclusive, capitalism and long-term value creation. Paul Smith, Chief Operating Officer, State Farm said, "The growth mindset that our founder put in place has continued but so has what we consider the mutual advantage. It really permeates all aspects of our organization. This idea of long-term thinking and being very customer-centered is very hard to separate from the operation of our organization because it’s largely who we’ve been and who we are."

This idea of long-term thinking and being very customer-centered is very hard to separate from the operation of our organization because it’s largely who we’ve been and who we are.
Paul Smith
Chief Operating Officer, State Farm

At the most successful mutuals, most operational initiatives and activities directly reflect the purpose-led strategies, often through value-adding services focused on increasing engagement and enhancing the experiences of members. Those services vary based on the mutual, but common examples include:

  • Roadside assistance features on automotive policies
  • Financial and retirement planning and investment advice
  • Legal advice
  • Travel services
  • Home security and surveillance
  • Risk assessment and prevention for small businesses
  • Wellness programs, discounts on gym memberships and fitness trackers

These types of services can also boost revenue, an important objective that mutuals continuously seek to balance with increased member engagement.

Our experience tells us that mutuals very much understand the importance of purpose-led strategies, and the unique advantages they confer. In an interactive poll EY conducted among senior mutual insurance executives, approximately 70% say their business operating model and governance structure helps accelerate and activate their organization’s purpose-led strategy. Still, participants see plenty of improvement opportunities, with only 24% saying their organization’s purpose is fully embedded in strategy and guides growth initiative.

EY Global Insurance Mutual Market Scan

70%

of mutual insurance executives say their business operating model and governance structure helps accelerate and activate their organization’s purpose-led strategy.

Today’s purpose-led strategies are distinct from the corporate social responsibility (CSR) programs of the past in that they directly correlate to financial performance. Strategic key performance indicators (KPIs) measure long-term value and overall impact, which link back to financial results. For instance, mutuals that emphasize human wellness may track employee health via participation in wellness programs, which leads to lower health care costs tracked in the expense ratio. Similarly, looking at member value, more innovative products can boost customer satisfaction and loyalty, leading to higher revenue and improved market share.

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Chapter 2

Member centricity

Owner engagement models should be unique from standard customer engagement models.

Because mutual insurers view their customers in fundamentally different ways than their stock carrier counterparts, they have different engagement and service models. Actively involving the member community within governance decisions is a common denominator among successful mutuals. Member perspectives are a critical input into the decision-making process, providing valuable insight into evolving community needs, which leads to faster and more responsive updates to product and service portfolios. Regularly asking members about their needs and preferences can also promote stronger overall engagement and more durable relationships. This is how mutuals show that their members really do matter.

Our research found that globally, mutuals refer to policyholders as members, which implies both customer and owner. A customer is the underlying policyholder who interacts with the organization’s insurance products and services (both directly and indirectly), thus accruing benefits in their day-to-day lives. An owner is a stakeholder concerned with the governance, strategic and financial direction of the organization. Many mutuals execute distinct engagement strategies for customers and owners, with targeted offerings, benefits and privileges, which are a key source of differentiation.

Jean-François Chalifoux, President and Chief Operation Officer, Beneva, said, "Our mutualist nature is embedded strongly in our vision and strategy, and we think this will be a huge driver of differentiation in the marketplace. We strive to be a player of impact by building on an approach that’s truly member-centric by putting people first in everything we do."

Our mutualist nature is embedded strongly in our vision and strategy, and we think this will be a huge driver of differentiation in the marketplace.
Jean-Francois Chalifoux
President and Chief Operation Officer, Beneva

Customer centricity is essential for all types of insurers to compete and produce short-term shareholder return. Increasingly, it is the principle that defines seamless and engaging experiences across the value chain (e.g., underwriting, distribution, claims, service) for members that purchase and own mutual products. However, by itself, customer centricity does not differentiate mutuals from other types of insurers.

By overtly leveraging owner centricity, however, mutuals can distinguish themselves from competitors that claim to “focus on the customer.” By involving members in decision-making around strategic direction and de-emphasizing profitability, mutuals can treat members as owners and adopt a longer-term view toward creating value, both for themselves and their members. In our experience, mutuals orient their portfolio strategies around their assessments of members’ lifetime value to a greater degree than stock carriers.

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Chapter 3

Value creation

Creating value for core and peripheral member segments is integral to growth and innovation.

Like other carriers, mutuals win or lose based on their ability to generate value for their members. Ideally, the financial benefits mutuals provide should align directly to their purpose-led strategy and focus strongly on:

  • Distributing surpluses to owners
  • Providing cash-back to customers and members
  • Offering post-claims savings through partnerships with ancillary service providers

By managing these benefits, mutuals can create tiered ownership structures with unique benefits for different segments. For instance, members may be grouped based on specific affiliations or criteria (e.g., military service, membership in an association) with different financial benefits for each subset of members.

Shaun Tarbuck, Chief Executive Officer, International Cooperative and Mutual Insurance Federation said, "The mutual differentiator is all about the long-term and sustainable nature of the business. It’s about being purpose-driven, for the members but also the customers, society, employees and the whole gambit of stakeholders that we impact. I believe we are well ahead of the game in this."

The mutual differentiator is all about the long-term and sustainable nature of the business. It’s about being purpose-driven, for the members but also the customers, society, employees and the whole gambit of stakeholders that we impact.
Shaun Tarbuck
Chief Executive Officer, International Cooperative and Mutual Insurance Federation

Some mutuals segment tiers of customers based on the profitability of the products they hold and reward the highest-value customers with surplus allocations or dividend payments. Others use predictive analytics to reward members based on projected lifetime value, along with current profitability. Rebates, discounts and credits can amount to 5% of premium payments. Such tiering has proven to be effective in increasing loyalty and engagement among top customers.

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Chapter 4

A special focus on social issues

Social and economic change across local communities and underserved segments is critical.

Successful mutuals embrace not-for-profit philosophies, which focus on core social issues. Product offerings and locally led community sponsorships are directly linked to these issues. This approach promotes stronger engagement and brand awareness and is usually managed through corporate-owned investment frameworks. Typically, face-to-face distribution is used as a catalyst for local connectivity.

Mutuals serve as a curator between members, local businesses and the community through:

  • Sponsoring local businesses so they can better serve the community
  • Providing access and coverage to underserved and marginalized customer segments

The latter group is particularly important given the societal attention being paid to income inequality and the savings and protection gaps that were exacerbated by the pandemic. In addressing underserved market niches, mutuals often use social KPIs to measure their impact. Those KPIs can include the number and percentage of insureds who are:

  • Below the poverty line
  • Minorities
  • At or above retirement age

Individuals in these groups are often excluded from insurance services or struggle to access affordable policies.

Social investment ratios are another common metric. This social KPI measures the resources insurers commit to information, education, communication and prevention in the local community, for which no direct financial returns are expected.

It’s worth noting that many mutuals select their community initiatives by measuring either the direct or indirect returns on their investments. Here again, purpose and financial performance are not mutually exclusive.

The mutual maturity model

Following our research, we created a mutual maturity model based on the core competencies of market success for organizations, including:

  • Community orientation: strategies focused on core social issues and strong engagement models
  • Policy and product differentiation: monitoring and anticipation of member needs and ongoing innovation in product design and offerings
  • Value-adding services: alignment to member needs and overall purpose and measurement of ROI
  • Member engagement: emphasis on mutuality in branding and ongoing communication and member input into company changes
  • Financial benefit: consistent delivery of value (e.g., cost savings, dividends) aligned to strategy and designed to boost engagement

We used these core competencies to gauge overall maturity of mutuals in six markets – the US, Canada, the UK, France, Switzerland and Australia. Our findings show that Australia, Switzerland and the UK are the most mature markets, while US mutuals lag, particularly in the area of providing value-adding services.

The bottom line: the moment for mutuals

As with stock carriers, mutual insurers find themselves in a unique position in the post-COVID-19 market. Indeed, now is the time for mutuals to be bold with their growth strategies, identifying new opportunities where their purpose-led brands can gain traction and new segments they can serve. They must seek to harness the differentiating power of their purpose and customer-centricity to meet the moment. Thanks to the increased awareness of the savings and protection gaps, economic inequality and the emergence of stakeholder capitalism, all insurers – but especially mutuals – can demonstrate their value and relevance at greater scale than ever before.

  • Show article references#Hide article references

    1. EY is a “Supporting Member” of the The International Cooperative and Mutual Insurance Federation (ICMIF), the global representative body for the cooperative and mutual insurance industry. As a Supporting Members, we collaborate with ICMIF and its members to help grow and advance the mutual and cooperative insurance sector.

Summary

Given the power of these differentiating principles, mutual insurers are well positioned to do well by doing good – sparking growth by meeting the needs of individuals, businesses and communities around the world.

About this article

By Isabelle Santenac

EY Global Insurance Leader

Passionate transformation insurance leader. Inspiring the next generation of female leaders. Proud mother of three. Trail runner. Golfer. Skier. Loves traveling and cooking.

Related topics Insurance