Mutual Insurers Rebound (Slightly), Though Threats Remain: Swiss Re

Mutual insurance companies have gained back some of the global market share they lost due to demutualizations in recent years. Those gains are threatened, however, by new financial regulations, changes in corporate governance and new technology, Swiss Re said in its latest Sigma report.

“Despite their strong showing during the global financial crisis, mutual insurers face challenges in adapting to the changing business environment,” Swiss Re notes in its report. “New risk-based regulatory capital standards could put some firms at a competitive disadvantage compared with better-diversified insurers.”

Swiss Re said that mutual insurers’ share of the global insurance market grew from 24 percent in 2007 to just over 26 percent in 2014. The Sigma report notes that mutual insurers have outpaced the wider insurance market in terms of cumulative premiums written, with much of those gains coming during the worst part of the 2007 financial crisis and its aftermath. Gains aside, however, the market share is much lower than the sector had before a wave of demutualizations hit in the late 1980s and early 1990s.

Swiss Re warns that a number of factors could harm those limited gains, including:

• Risk-based capital standards. Swiss Re’s report suggests that these new requirements could put mutual at a competitive disadvantage compared to more diversified solutions. They’ve countered these challenges in some countries by pushing for new legislation that addresses mutual-specific capital instruments.

• Corporate governance. The concern here is that the mutual insurance business model could be threatened by tougher corporate government arrangements. This would be of particular concern to smaller mutual insurers worried that the new measures could impair their viability.

• Digital technology. The Sigma report sees this as perhaps the largest game changer for regular insurers as well as mutual insurers. While some insurers are on the forefront of digital change, Swiss Re said that smaller mutuals “remain in the digital slow lane” and could be left behind if they don’t adapt.

At the same time, Swiss Re notes a number of factors that could help mutual insurers seize the day and continue their renewed expansion. They include:

• Alternative sources of capital. Swiss Re said that reinsurance and insurance lined securities are among new sources of capital and financing that could give mutual much more financial flexibility to “cope with unexpected losses, grow their business and compete with other types of insurers.”

• New technology. Swiss Re said the growth of new technological approaches to selling, such as peer-to-peer insurance platforms, could help mutual insurers rebound their market share even further. P2P platforms, which help individuals share selected risks like mutual insurers, are relatively small scale. But Swiss Re said that technology such as Blockchain could help increase the scope of P2P platforms. Other growth tools, if used correctly: smart analytics and social media, both of which could give mutual insurers a better understanding of what customers want.

Source: Swiss Re