{{indexingdisabled}} Best's Review - September 2024 Edition - The Mutual Difference

Global Mutual Premiums and Market Share

with generative AI coming in. We established that

mutual insurers often excel due to their customer-

centric approach, driven by the loyalty and shared

ownership of their members. Without shareholder

distraction, they’re able to make long-term decisions

about using this technology and what the purpose of

the technology is—with a focus on improving things

for the customer rather than to improve things for

the organization.

How does that fit into the equation when

you’re doing microinsurance in some of the

emerging markets?

A really good example of that is in the

Philippines. There’s a superb organization called

CARD Mutually Reinforcing Institutions,

which is a global leader in the microinsurance

industry. CARD’s brilliant suite of very, very

simple life products [is] designed to meet the

protection gap, and they have managed to reach

26 million people using technology, using very

basic, phone-based technology.

The way that they achieve this—and the

reason that they don’t need to have a highly

sophisticated financial system to lean on—is

that the model is sustainable, scalable and

affordable. You could get these products on

your phone, but you can also get it in your

supermarket.

Their main concern is people who are out in

the very rural areas. If somebody gets ill on their

farm and they can’t farm, it could be literally life

or death for the family. So being able to provide

them with a trusted, simple product that pays

out quickly is exceptionally important.

Just socializing this type of insurance model

1,600

1,400

1,200

1,000

800

600

400

200

24.1%

2007200820092010201120122013201420152016201720182019202020212022

BEST’S REVIEW

•

SEPTEMBER 

Source: ICMIF

Global Mutual Market Share 2024.

30%

27.4%

Market Share

27.0%

27.5%

27.3%

26.9%

28%

25.9%

26.2%

25.9%

25.5%

25.9%

26.0%

26.3%

20%

22%

24%

26%

27.4%

26.4%

and showing why it works and how we could

scale this up all over the world is something that

I’m really committed to doing.

How can you help mutual insurance

executives avoid the temptation to convert

to stock-based ownership?

Our job is to amplify the benefits of mutuality

as seen through the lenses of different parts of

the world. The whole demutualization theme can

come up in board conversations and that needs

exploring. One of the things that we do is we

work really closely with boards to help evaluate

the case for remaining mutual.

Occasionally, board members or executives

can come in with a romanticized notion of

what demutualization could look like: “We’ll

get all this money and we’ll be able to raise

capital, etc.” But our research has shown that

whilst there can be short-term gain, those

benefits really start to dip over time as does

the value to the policyholder. So very few of

these demutualizations have really ever come

to a happy ending. In fact, what we’ve seen is a

number of re-mutualizations and a number of

abandoned demutualizations because members

don’t just want it.

Most mutuals tend to be national or, in the

U.S., can be state-based. They understand their

regional/local risk and they understand what’s

on the members’ minds. Demutualization can

threaten that. So losing that sense of purpose

can be a real challenge to the demutualization

business case.

How do you see your role at ICMIF

Mutual Insurers: ICMIF Q&A

Premiums (USD billions)

Special Section

Sponsored by:

economic challenges have led mutuals to consider

more aggressive rate actions, he believes they must

maintain their unique identity that gives them an

advantage.

“We’re the farm-to-table of the financial

services industry,” he said. “These are Main Street

companies. That connection to their communities

is very strong. You see more companies beginning to

identify themselves that way, and trade on that.

“It’s a combination of the pandemic issues, and

even going back to the financial crisis, and just what

you see in the social consciousness of the country,”

he said. “People want to buy local, organic whatever

it is. You have your local beer. You have your local

farmers market. You’ve got your local mutual

insurance company. That sort of fits with the social

thinking today, and I think you see companies

beginning to respond to that.”

Alldredge recently spoke about the challenges

mutuals face, including legislative hurdles and

marketplace pitfalls, and discussed how mutuals

can navigate the rate environment and still succeed.

Following is an edited transcript of the interview.

What challenges that mutuals were facing

last year continued into this year?

We continue to see this broad combination of

events. The inflationary pressures are still there.

The general economic conditions being what they

are. Challenging weather patterns. A litigation

environment that is getting more complex by

the day. Reinsurance issues. This new era of risk

is affecting all insurers, and mutuals particularly.

Mutuals are in a lot of personal lines.

Our members write almost 70% of the

homeowners market and nearly 60% of the auto

market. Those lines of business are where all the

inflationary pressures have been. Mutual companies

tend to write in Midwestern states and New England,

where you also see weather patterns changing. So,

in addition to the broader factors that are affecting

everybody in the industry, you see a heavier focus on

the mutual companies’ performance based on what

and where they write.

According to an AM Best report, mutuals

are pursuing aggressive rate changes. How

does that fit with the traditional role of

mutuals?

It’s a bit of a departure in the sense that one

of the real strengths of mutual companies is that

they’ve got decades, if not centuries, of experience of

how to deal with these things.

They also have the benefit of building capital

over that period. They are able to take a long-

term view, and historically that may have meant

they took a more conservative approach when

it came to rates. That is probably different now,

in part because the economic conditions and

the inflationary pressures have changed so fast

in such a dramatic way. Insurance pricing in

general lags. The price you’re seeing today for

homeowners or auto insurance is in many states

reflective of changes in the cost of repairs or

whatever the case might be from 18 months ago.

They had to file for rates, get it approved, have

it work through their book of business, and it’s

just a slow process.

The same AM Best report states, “Mutual

companies are relying more and more on

their own capital to protect them in the

event of a large loss—a departure from the

past, given the limited avenues available

to mutuals to access capital.” Discuss this

shift in mindset.

This is where you see changes in the reinsurance

market. In the beginning of 2023, capacity shrunk,

reinsurance pricing went up, and the terms changed

a lot. You had to retain more of the losses. You also

saw the results from 2023 for most reinsurers to be

particularly good. That continues to be the case into

this year. Most people think the pricing capacity

questions are going to loosen a bit in the reinsurance

market.

In the short run, mutuals have had more of their

own capital in the form of surplus exposed because

of the changing terms in the reinsurance market.

That’s changing. If you talk to most reinsurers,

pricing is one thing, and that may not change

substantially. But there certainly seems to be more

capacity in the reinsurance market, which should

affect the terms and retention rates for primary

companies.

What is the current identity of the mutual

industry?

One thing is that 15 years ago, mutual companies

didn’t talk about being mutual companies very

much. It wasn’t something they traded on in the

BEST’S REVIEW

•

SEPTEMBER 

https://www.plmins.com/

marketplace. There are

national carriers, but certainly

more regional and midsize

carriers talking a lot more

about their mutuality now.

That connection to the

policyholders, that reason for

their existence becomes much

more of an identity for them.

There was the thought

that it was too complicated

to explain, and nobody cares

about the corporate structure

of their insurance company. A

lot of companies have learned

that this is a differentiator.

We’re the farm-to-table of the

financial services industry.

These are Main Street

companies. That connection

to their communities is

very strong. You see more

companies beginning to identify themselves that

way, and trade on that.

It’s a combination of the pandemic issues, and

even going back to the financial crisis, and just what

you see in the social consciousness of the country.

People want to buy local, organic whatever it is. You

have your local beer. You have your local farmers

market. You’ve got your local mutual insurance

company.

That sort of fits with the social thinking today,

and I think you see companies beginning to respond

to that.

What are some of the other changes you’ve

seen, and when you get through these

hurdles and challenges, will mutuals look

the same as they did five or 10 years ago?

The biggest change we’ve seen in the last 18

months or so has been the pace of consolidation,

particularly in the smaller segment. The number of

small companies continues to shrink. They merge

with each other. Last year, there were 34 mergers.

This year, we’re at 67.

If you took the five years prior to that, you’d

probably have an average of seven or eight a year.

You end up with companies that are financially

stronger, larger, able to withstand more. You’ll see

companies that are financially stronger because they

BEST’S REVIEW

•

SEPTEMBER 

will have better pricing.

You see some of the line

of business changes. We’ll

focus more on commercial

lines or whatever the case

might be, so you’ll see

some changes there, but in

the long run, the mutual

industry will be here and

continue to serve the

interests of its policyholders.

What are some of the

regulatory hurdles

mutuals currently face?

What proposed and

pending legislation do

you have your eye on?

The rate-making process

in certain states is better than

others. California, New York

and New Jersey lead the way

in the slow, hard-to-get category, and their markets

are reflecting that. They are beginning to change.

They certainly are approving rate increases in

those states, probably not at the rate people would

like them to. You also see some positive, guarded

optimism in California, with some of the proposed

changes around allowing insurers to use their

reinsurance cost in their rate-making. You couldn’t

do that before. There are some efforts to do that

now by changing regulation in California. Same

thing on the use of catastrophe models.

Obviously, the fire risk in California is a lot

different today than it was 20 years ago. Being able

to model that and use that in their pricing is going

to help insurers have a better picture of what their

risk looks like.

Which specific pieces of legislation are you

looking at at the federal level?

For third-party litigation funding, there’s a couple

of good bills at the moment in Washington. One

would prevent sovereign wealth funds, like a foreign

government, from investing in lawsuits. It’s a nefarious

practice and something most people agree we shouldn’t

allow in our litigation system. There’s a good bill that

would prevent that. It goes along with transparency,

just having to disclose that a third-party lender is

involved in the case. There’s bipartisan support.

“They are able to take

a long-term view, and

historically that may have

meant they took a more

conservative approach

when it came to rates.

That is probably different

now, in part because the

economic conditions and

the inflationary pressures

have changed so fast in

such a dramatic way.”

Neil Alldredge

National Association of

Mutual Insurance Companies

Mutual Insurers: NAMIC Q&A

Special Section

Contents