Structure
Mutuals come in all shapes and sizes with anything from 20 to 2,000,000 policyholders. Popular in markets such as the US, UK, Japan, Germany and Spain, they are run for the benefit of policyholders, who act as participating members with the right to appoint the insurer’s board of directors and share in any profits.The policyholders of mutual insurers share a similar risk profile (i.e. they are from similar industry sectors or are larger corporates whose divisions share a “commonality of risk”). Instead of having shareholders, the policyholders of mutual insurers act as participating members.
They pay a premium (contribution) into a common fund to indemnify each other against annual loss and receive dividends during profitable years.
Premiums are based on the loss experience and risk management policies of the members and not the wider industry. The use of optimal retention levels mean prices avoid the peaks and troughs associated with the general insurance cycle. And because insurance is tailored to fit the shared risk profile of members, cover has a depth and breadth not readily available in the commercial insurance sector.
The policyholders of a mutual insurer generally share similar risk profiles. The members pay premiums into a common fund to indemnify each other against loss, in return for claims payments and dividends during low loss years. The structures are arranged to ensure that, except in very unusual and extreme circumstances, members do not have to make additional payments to cover losses in any year, however bad the losses are.