Mutual insurers' market share increased from 24% of primary insurance premiums written in 2007 to just over 26% in 2014, reversing some of the declines of previous decades, according to reinsurer Swiss Re.
Digital analytics and social media can help mutuals serve members' needs while their business model can keep risks insurable, according to the “Mutual insurance in the 21st century: back to the future?” sigma paper.
But the segment faces challenges, noted the report, including adapting to new risk-based capital and corporate governance standards, which could put some mutuals at a competitive disadvantage.
The financial crisis years of 2008-2009 were cited by the study as the moment when mutuals most “outpaced” other insurers’ growth rates.
“That mutuals' relative premium performance did not reverse once economic growth resumed after the financial crisis, suggests a degree of permanence to the segment's recovery,” said Kurt Karl, chief economist at Swiss Re.
“Some mutual groups have expanded internationally in recent years, and new mutuals have been established in a number of markets, another indication of the segment's renewed popularity,” said Karl.
Despite the comeback since 2007, Swiss Re noted the mutuals’ market share remains well below previous highs.
For example, mutuals held some 23% of global life premium in 2014 down from 66% in the late 1980s and early 1990s, noted the sigma report, before a wave of demutualisation in several countries.
Regulation – in the form of risk-based capital and corporate governance reforms – represent a challenge, particularly to smaller less diverse mutuals, although regulators alert to proportionality concerns, suggested the report.
“There has also been a renewed focus on the range of capital solutions available to mutuals, including legislation in some countries to allow equity-like capital instruments to be issued, such as certificats mutualistes in France,” said Swiss Re.
“Together with customised reinsurance solutions and alternative risk transfer mechanisms such as insurance-linked securities, this will give mutuals increased financial flexibility to grow their business and compete with other types of insurers,” added the reinsurer.
Mutuals should “embrace technological disruption”, suggested Swiss Re, potentially leading to a more major resurgence.
Exploiting digital technology such as smart analytics and social media would allow mutuals to better serve their member-owners, said the sigma study, while their ownership structures should enable them to keep insurance affordable for some individuals and risks.
“Mutual insurers must adapt and upgrade their underwriting and distribution practices if they are to remain relevant in the digital age. There are signs that many are actively embracing such change, but some mutual insurers are lagging behind,” said the study.
Swiss Re criticised some smaller mutuals for lacking full online functionality, as “perhaps reflecting their greater attachment to traditional agent/broker distribution”.
“The laggards run the risk of losing out to market participants better placed to harness the new technologies,” said the reinsurer.
“This is especially true given the growing development of peer-to-peer (P2P) insurance platforms, which enable individuals to share risks among themselves in much the same way that affinity-based mutual insurers do,” warned Swiss Re.
Social media and smart analytics “should be a natural fit for mutuals”, the report suggested, to better understand customer demand, given their underlying purpose to serve members’ long-term needs rather than transferring profits to shareholders.
“By leveraging new technologies, mutuals can continue to build on their recent renaissance and potentially launch a new era of mutualism,” said Swiss Re.
“Furthermore, technology-led moves towards full risk-based pricing could price some people out of conventional insurance. Without the distraction of providing returns to external shareholders, mutuals could play a crucial role in keeping insurance premiums affordable and certain risks insurable,” the reinsurer added.