It is a long time since a regulatory “level playing field” has been an aspiration for mutual/cooperative insurance companies. In certain jurisdictions, it is not entirely uncommon for insurance regulators or legislators to develop policies that presume all insurers have the same ownership and governance structures. But mutuals/cooperatives do not have the same ownership structures, nor are they governed the same way: they are owned by their customers (or customer-owned groups), who do not have the same rights as shareholders, but do participate in the firm’s governance, and are referred to as members.
Instead, the mutual sector is aiming for regulatory treatment that is “fair and balanced”. That’s the message which the sector promotes frequently, and which it repeated at the ICMIF/AMICE Regulatory Affairs Conference: Regulating our sector – From awareness to action on 5 April in Brussels to an audience that included the International Association of Insurance Supervisors (IAIS), the Organisation for Economic Cooperation and Development (OECD), and the European Commission. They, alongside leaders from mutual insurers around the world, were speakers at the one-day event focusing exclusively on regulatory issues for the mutual sector, which had been organised by the International Cooperative and Mutual Insurance Federation (ICMIF) and its European regional association, the Association of Mutual Insurers and Cooperative in Europe (AMICE).
AMICE has worked for many years among European policymakers and held consulting status with the European Commission; more recently, global influences are now increasingly impacting on insurance regulation, and ICMIF has responded by taking action at that global level. As the regulatory burden increases, so the two organisations are working together more closely to increase their joint advocacy activities.
From insufficiency of suitable capital instruments to unsuitability of governance standards, the challenge was summed up by Hilde Vernaillen, CEO of Belgian cooperative insurer, P&V, and Chair of ICMIF. In her closing remarks at last week’s Brussels event, she emphasised: “We need balanced regulation for the mutual insurance sector. There is an education gap among regulators, which we need to close.”
This lack of balance and the ‘education gap’ exist in both mature and emerging insurance markets. A significant breakthrough for the sector came in late 2015, when the Chinese regulator approved a mutual insurance law. It provides invaluable experience for ICMIF’s efforts to influence regulators in the 45% of the world’s countries where there is still currently no legal framework for mutual insurance.
In jurisdictions where mutuals do exist, most regulation and the associated challenges are the same for mutuals as for other players in the wider insurance industry. Some regulation, however, cannot be applied in the same way by mutuals, due to their specific business model.
Governance is one such area. Following the failure of Equitable Life, then the oldest life mutual in the UK, friendly societies and life insurers came together to work on annotating the existing Combined Code – removing measures that refer to shareholders and replacing them with measures that refer to members – to produce a voluntary code of practice. It not only satisfied the regulators, it went beyond the provisions laid out for shareholder-owned life insurers. Some 12 years later, the updated Code continues to set out the highest standards of governance for UK life mutuals, build trust with members, and provide assurance to regulators.
Another area of challenge lies in market conduct regulations. These have as their core objective the protection of consumers, which may be in particular risk when firms aggressively seek to maximise shareholder returns. The absence of external shareholders within the mutual model reduces this potential for shareholder-customer conflict, but where regulators fail to take this into account, mutuals still face the full burden of the regulations which are essentially irrelevant.
These challenges are usually not limited to certain markets or regions. Commenting on the debates at the Brussels event last week, Brad Hewitt, CEO of American life mutual Thrivent Financial, noted that despite the differences in regulatory approach between the USA, Europe and other regions, “mutuals are dealing with the same problems everywhere. We are all doing significantly more compliance work to satisfy our various regulatory bodies, but we have to question whether our members are getting significantly more benefit as a result”. There is not always a clear and commensurate correlation between the cost of compliance and the benefits that it confers on the members of mutuals.
There is also an interesting alternate – but related – situation. Uplift Mutuals in India is a rapidly growing group of microinsurers providing much-needed healthcare to the poorest segments of the population. Their work helps protect lives and livelihoods and thus supports socio-economic development and contributes to national government growth targets. Despite Uplift Mutuals’ rapid expansion and importance, they are currently not regulated. This is something that they want to change, explains Kumar Shailabh, Managing Director; regulated status would help them demonstrate that their employees, products and practices are every bit as good as those of the big market players. Again, it is a matter of balance.
Mutuals are ready to fight for this balance. Building on previous education efforts (in 2015, for example, ICMIF produced a practical guide about mutual insurance, specifically aimed at regulators), the Brussels event concluded with the formal launch of new International Advocacy Hub (IAH) which will be run by ICMIF. It takes inspiration from AMICE’s European regional advocacy work, adapting and extending its reach to global-level regulatory issues. The IAH will draw on the expertise and experience of the mutual sector, and ultimately enhance ICMIF’s contributions to the development of global regulation. In some cases, the battle ahead may look rather fierce, but it is a battle for which mutual insurers are ready.
This blog was originally written for and published by Insurance Day in a special feature on regulation (published 10 April 2017). The blog is reproduced here with the kind permission of Insurance Day.