The best interests of financial services consumers are much better aligned with a mutual insurance company than a stock insurance company.
Mutual insurance companies are owned by policyholders. Owners of an insurance contract issued by a mutual company are both customers and owners of the insurance company.
Stock-based insurance companies are owned by shareholders, so their focus is divided between customers and shareholders.
Mutual insurance companies are a form of cooperative where individuals voluntarily associate to form an organization that serves the mutual benefit of its members, and where economic surplus or profit is distributed to customer/owners in the form of dividends.
The financial benefit of choosing to be a customer of a mutual insurer is very real.
For example, Northwestern Mutual--one of the best known mutual life insurance companies--notes that it expected to pay almost $4.9 billion in dividends to its policyholders in 2011.
Mutual insurance companies also have strong incentives to make decisions that are in the long-term interests of their customers rather than respond to short-term capital market and shareholder pressures.
Consider, for example, the developing market for longevity insurance. Sixty percent of the companies currently offering retail longevity annuities are mutual insurers.
With interest rates at historic lows, the longevity annuity market is hardly attractive from a near-term profitability perspective. However, the need for these products and the value they present to consumers is very real.
It is largely the mutual insurers who have committed to longevity insurance product development--presumably with the belief that the value for the customer is already there and the value for the organization will follow over the longer-term.
Mutual insurance companies are able to “play the long game.” In other words, mutuals are able to make management decisions that play-out over decades rather than quarters.
This commitment to the long game is reflected in the stability of many of the better known mutual life insurance companies. Financial stability is part of the picture as certain mutual life insurance companies consistently receive the highest financial ratings.
The longevity of mutuals is also part of the stability theme. For example, New York Life, Northwestern Mutual and MassMutual have each been in business for over 150 years.
Lower expenses may also be a benefit of choosing to do business with a mutual insurance company. Again, mutuals do not have the same profit maximization incentives as their stock-based counterparts, and this can be reflected in lower overall product expenses.
Annuities involve very long-term financial commitments. Financial strength, operating stability and expense structure should be high on the list of considerations for any potential annuity buyer.
- tom's blog
- Log in to post comments
