John Marsden (PPS), Mike Jackson (PPS) and Shaun Tarbuck (ICMIF)
Rianet (FAnews) and Mike Jackson (PPS)
New international research following the financial crisis of 2008/09, which led to question marks over the effectiveness of the current structure of many traditional financial services institutions, has shown that mutuals outperformed during this period, particularly in Africa.
The International Cooperative and Mutual Insurance Federation’s (ICMIF) Mutual Market Share Report 2009 – which is due to be released at the end of July 2011 – reveals that the market share of mutuals in Africa increased by a robust 15.4% between 2008 and 2009, ahead of all other markets. North America recorded a 7.3% increase in mutual market share, while Europe recorded a 3.2% increase. In South Africa specifically, the market share of mutuals increased by 15.9% over this period.
“Mutuals outperformed the market in both life and non-life insurance sectors in the 2008/09 period,” says Shaun Tarbuck, CEO of the ICMIF. “In particular, those markets where mutuals used mutuality as a differentiator significantly outperformed the industry.”
Tarbuck says new mutual models are now being formed internationally in the UK, US, Australia and Italy. “There are a number of reasons why we are seeing this shift back towards the mutual model including a greater awareness of mutuality as an alternative business model, particularly with regards to the inefficiency and potential greed that is witnessed in commercial markets.”
“We also believe that the current boom in social networking and growth in communities, where sharing of information and trust remain paramount, has also seen the key conditions for growing mutuality return,’ says Tarbuck.
Mike Jackson, CEO of PPS, the specialist financial services provider to the graduate professional market and South Africa’s largest company that still operates under an ethos of mutuality, argues that the move by some South African financial institutions away from the mutual model, over the last few decades, has not necessarily been to the advantage of clients and policyholders. “Unlike listed financial services companies, in which all profits accrue to shareholders, a mutual exists solely for the benefit of its members, who share in the profits of the company.
“It is unfortunate that there is a decreasing number of mutuals operating in South Africa as it would be a huge benefit in the local context, given the spirit of ubuntu that runs through many communities. Mutuality is also aligned to that and speaks to looking after community interests rather than shareholder interests.”
Jackson says the performance of mutual companies through the financial crisis in comparison to many listed life companies was exceptional, with many mutuals growing their asset and client base strongly over the period, whilst listed life companies sought government intervention and were distressed sellers of their equity.
“The fact that a mutual company doesn’t have shareholders means it is able to concentrate on its long term commitments and promises. Having no external shareholders means a mutual also has no need to set aggressive profit targets, in order to deliver short-term, volatile returns to shareholders.”
Jackson says PPS, which celebrates its 70th birthday on 8 July 2011, is a good example of how the concept of mutuality works to the benefit of its shareholders. The company has returned a total of R7.8 billion to members in the five years to 2010. The company has also grown rapidly in recent years, despite the financial crisis. In 2003 PPS’s total assets were R5 billion – after 62 years in operation. A further R11 billion of assets have been added during the last seven years.
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