Often referred to as clubs or mutuals, mutual insurance companies or associations are non-profit-making organizations whose members pool risks of a similar nature to achieve long-term and stable insurance protection at cost. This form of insurance goes back over one hundred years.
Mutuals protect groups as diverse as the nuclear industry, shipowners, universities, the oil industry, along with professional bodies such as accountants, doctors and attorneys, and various groups of employers in respect of their workers' compensation or employers' liability exposures. The list is almost endless - the common factor is the fact that those involved wish to control their own insurance affairs and to obtain the maximum protection for the minimum cost.
Signal Mutual Indemnity Association is such a mutual.
The Mutual Edge
The idea of a mutual is to provide insurance cover at cost. Insurance at cost establishes a goal for each member to contribute to the mutual only the cost of its own claims plus overhead. Cost is minimized by a strong emphasis on in-house expert claims handling, led by a substantial number of qualified staff, and by focusing on safety, loss prevention and risk management, as well as by ensuring each Member is correctly rated based on its own record. Any surplus accumulated is not paid away to shareholders but retained within the mutual, where it can be used to smooth the impact of higher claims or, if not needed, put to reserves or contingency funds.
The object of a mutual is not the generation of profit for shareholders but the maximization of cover for Members. A mutual is able to tailor its insurance to the requirements of its members, generally providing as much cover as it prudently can and often allowing a wide discretion in the settlement of claims. Commercial insurers, on the other hand, tend not to be so accommodating. As a collective body with the ability to buy in bulk and retain a risk, a mutual has the ability to access the world's reinsurance markets.
The coverage provided by Signal, that is employer liabilities under the LHWCA, requires certificates of entry to be provided to members rather than policies of insurance. Cover is statutory and unlimited.
The members of a mutual control their own affairs through a board of directors, to whom the managers of the mutual report. In setting the policy within which the managers operate, the directors concentrate on the interests of the mutual's policy holders, or members, rather than shareholders.
A mutual sets criteria for membership to exclude, for example, those who would otherwise bring an unacceptable degree of risk, whether by reason of their business itself or their own operating practices. Commercial insurers, who are focusing on short term profit, may be less selective, often to the detriment of those who consider themselves to be better risks.
A mutual provides a long-term source of cover. It is largely unaffected by the imbalances in supply and demand which occur in the commercial insurance market and which lead to its cyclical nature. A mutual will remain a natural provider of insurance to its members.
A mutual places strong emphasis on facilitating members' cash flow through the phased payment of premiums or calls (some of which may be deferred until the level of claims demands them) and the prompt payment of claims.
The Management of Mutuals
Once the decision to create a mutual has been taken the question arises as to who will manage its day to day affairs. The potential members wish to maintain control but do not normally wish to have to divert attention from the management of their own businesses. The result is that many mutuals employ management companies to run their day to day affairs. Charles Taylor specializes in creating mutuals, bringing together a founder group of members, creating the necessary corporate structure and obtaining regulatory authorization.
As the managers of a mutual, Charles Taylor:
- reports on a regular basis to the mutual's board
- determines and collects the premiums payable by the members
- produces insurance documentation
- handles claims
- advises on the implementation of loss prevention programmes
- manages the investment of the mutual's funds
- arranges reinsurance programmes
- ensures the mutual's compliance with regulatory requirements and prepares its accounts
- responds to the needs of members by tailoring the scope of cover where appropriate.
The mutuals managed by Charles Taylor are incorporated in Bermuda, London and Singapore.