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.
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.
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.
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.
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.
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.
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.
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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.
