SEPOY.net
No Result
View All Result
Sunday, July 20, 2025
  • Home
  • News
  • Business
  • Health
  • Tech
  • Lifestyle
  • Economy
  • Crypto
  • Travel
  • Home
  • News
  • Business
  • Health
  • Tech
  • Lifestyle
  • Economy
  • Crypto
  • Travel
No Result
View All Result
SEPOY.NET
No Result
View All Result
Home Business

Is the mutual insurance company model under threat?

Nicholas by Nicholas
July 11, 2023
in Business
0
Is the mutual insurance company model under threat?

Mutuals were some of the first insurance companies to settle in Canada. But despite their longstanding history, there are existential threats that could “end the ability for mutual companies to participate in the market,” a mutual insurer executive said during an industry conference. 

READ ALSO

How brokers dial in client trust

Quebec grapples with back-to-back thunderstorms, floods this week 

Constraints on capital, increased consolidation, customer service innovation and climate change raising reinsurance costs (in some cases, equalling close to a quarter of a mutuals’ premiums) are causing challenges for mutuals. 

But mutuals, particularly the small ones, have one advantage: agility.  

In 1809, Halifax saw the establishment of the first insurance company, The Nova Scotia Fire Association—a mutual—on Canadian soil. Prior to this, foreign firms had dominated Canadian territory. A decade later, The Nova Scotia Fire Association was transformed into a joint stock company and renamed Halifax Fire, according to Swiss Re’s A History of Insurance in Canada. 

“If you go backwards in time, there were a lot of mutual companies; the industry was built by those companies. But times have significantly changed and market pressures are very, very different today than they have been in the past,” said Paul Jackson, COO at Gore Mutual Insurance Company during the Insurance Brokers Association of B.C. (IBABC) AGM and Leader’s Conference in Whistler, B.C., in June.

Antique photograph: Halifax, Nova Scotia, Canada

Antique photograph: Halifax, Nova Scotia, Canada. iStock.com/ilbusca

The challenges 

One of the biggest challenges faced by mutual insurance companies is access to capital, or more specifically, “our inability to access external capital,” said Jackson. 

Because mutual insurance companies are owned by policyholders, any profits earned from premiums go back to the policyholders in the form of dividends or lower premiums. The draw for policyholders is that they are often offered more competitive pricing. 

However, this also means mutuals can only raise capital by borrowing money or increasing rates. 

“In effect, we can spend what we earn, so earnings have to be consistently strong. And you’re spending a balance of surplus to fuel the investment in your business. This is a major constraint for us,” Jackson said.  

“It’s one that we’re working on through lobbying the government, talking about other opportunities for capital raising, [and] trying to find a way of modernizing and putting innovation into the Canadian regulatory environment that allows us to raise capital that we can then reinvest in our business.” 

With constraints on capital, Jackson says mutuals also tend to be limited with innovating their business for the betterment of their customers.  

“A lot of mutual companies are what we call dynamically conservative. Their number one priority is to protect the balance sheet because, of course, there is no ability to access third-party capital,” said Jackson. “That, of course, comes at a tradeoff of innovation in new technology, new ways of accessing customers, and providing customers with what they need.” 

Consolidation is also beginning to threaten small- to medium-sized mutuals who find themselves working with brokers owned by their own competitors, said Jackson.  

“For example, there is a small mutual company, much smaller than ours, where more than 50% of their portfolio of business is, in fact, with brokers that are owned by their direct competitors,” he said. “Without scale, without diversification, those companies find themselves in a position where they are not in the driving seat of their own future.” 

But the number one challenge mutuals are facing is climate—more specifically, the pressure that increased climate events are putting on mutuals’ reinsurance costs, Jackson said.  

“Just to put it into context, we spend about 5% of our premiums on reinsurance, and we’ve taken a number of actions recently…to ensure that that number does not increase much past 5% or 6%.” 

But some smaller mutuals may not have the resources to manage their reinsurance costs. “And for some of them, they’re now paying somewhere between 12 to 18% of premiums on reinsurance,” said Jackson. “That materially threatens those company’s ability to be economically viable, particularly if those numbers grow.” 

Increased reinsurance costs also mean some mutuals may have to pass the costs down to consumers by raising premiums.  

The opportunity 

While mutuals are certainly facing several threats toward their viability, their size and simplicity may be their key to success.  

Small insurers are well-positioned for being agile to change and adapting from the ground up when challenges arise. 

“One thing that certainly works in our favour is that we are a relatively small, simple business, and that gives us the inside track,” said Jackson. “The challenge for smaller companies, is to use that inside track as a competitive advantage.” 

 

Feature image by iStock.com/z_wei


Related Posts

How brokers dial in client trust
Business

How brokers dial in client trust

July 18, 2025
Quebec grapples with back-to-back thunderstorms, floods this week 
Business

Quebec grapples with back-to-back thunderstorms, floods this week 

July 18, 2025
How Canada’s latest resilience centre wound up in Toronto’s financial district
Business

How Canada’s latest resilience centre wound up in Toronto’s financial district

July 18, 2025
Report says Alberta government created command challenges fighting Jasper wildfire
Business

Report says Alberta government created command challenges fighting Jasper wildfire

July 18, 2025
Insights from the best insurance marketing campaigns
Business

Insights from the best insurance marketing campaigns

July 18, 2025
Manufacturers face triple threat – how can insurance agents step up?
Business

Manufacturers face triple threat – how can insurance agents step up?

July 18, 2025
Next Post
Pakistani Suits Online: Embrace Timeless Elegance with Convenience

Pakistani Suits Online: Embrace Timeless Elegance with Convenience

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

About

Sepoy.net is a perfect place for people who want daily updates on news related to business, technology, entertainment, health, cryptocurrency etc.

Contact: hello@sepoy.net

Major Categories

News

Business

Tech

Economy

 

Recent Posts

  • Revisión de el catálogo $ ningún john wayne de juegos ¿Es real unique casino? sobre elaborado de Gaming Club 2025
  • £5 Lowest Deposit Casinos in britain July play Amazon Wild Rtp online 2025
  • Fire Opals On the internet Position Wager Real cash Sign up Bonus & Totally free Spins

Pages

  • About Us
  • Contact Us
  • Disclaimer
  • DMCA
  • Home
  • Privacy Policy

© 2023 Sepoy.net

No Result
View All Result
  • Home
  • Business
  • News
  • Health
  • Tech
  • Science
  • Lifestyle
  • Travel

© 2023 Sepoy.net