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A mutual insurance company is an entity operating an insurance business that is owned by members or policyholders. The sole purpose of a mutual insurance company is to provide insurance coverage for members or policyholders. Mutual insurance companies, like conventional mutual funds, invest in securities like stocks, bonds, money market instruments, and other assets with any profits returned to members as dividends or a reduction in premiums. In several nations, whether an insurer may be designated as a mutual insurance company is determined differently.
The purpose of the mutual insurance model is to offer insurance coverage to members at or near cost. When a mutual insurance business makes a profit, it distributes it to its members in the form of a dividend payment or a decrease in premiums.
Since mutual insurance firms are not listed on stock markets, their investment strategy is free of the demand to meet short-term profit objectives and may function in the best interests of its members, with the goal of long-term advantages by investing in lower-risk, lower-yielding assets. Nevertheless, because mutual insurance companies are not publicly traded, policyholders may find it more difficult to assess a mutual insurance company's financial stability or how dividends given to members are calculated.
Huge companies can create mutual insurance firms as a kind of self-insurance, either by unifying divisions with distinct budgets or by collaborating with other such companies. For example, a group of physicians may determine that by pooling funds to cover their comparable risk categories, they might obtain greater insurance coverage and lower costs.
Demutualization occurs when a mutual insurance company transitions from being member-owned to being traded on the stock market, and the mutual insurance company becomes a stock insurance company. Policyholders may obtain shares in the newly listed firm as a result of this change. Most of the time, this is done to raise funds. Mutual insurance firms can only increase capital by borrowing money or increasing interest rates, whereas stock insurance companies can only raise capital by distributing shares.
Capitalism can be described as an economic system composed of organizations whose major beneficiaries are investors and where the privileged interest is, in general, a high return on the wealth permanently committed to the organization.
Alternatives to capitalism, "Social Economy" can be found in an economic system composed of organizations where beneficiaries other than investors are rewarded for the role of their organization's economic activity, such as purchasers, consumers, workers, or vendors. As a result, rather than maximizing return on investment, their primary purpose is to serve a public or mutual interest.
The concept "Social Economy" refers to a distinct attitude and set of core values rather than specific types of operations. It follows the values of placing service to its members or the community ahead of profit and the primacy of people and labor above the capital in income distribution. It also underlines democratic decision-making as a component of governance. Technically, social economy entities are cooperatives, associations, and mutual societies, all of which share the same philosophy.
Mutual insurers are commercial non-profits, whereas capitalist insurers are commercial for-profits. This indicates that their principal financial resources are still derived from the same source "Sales". However, for-profit insurers also rely on financial markets to raise funds for investment, something mutual insurers cannot do.
Moreover, there is a difference in ownership and governance structures, which is considered to have an impact on human resources. Concerning operational priorities, they are related to the type of legal form implemented, which establishes the conditions for resource mobilization as well as the rules of wealth transfer. In this scenario, mutuals' operational objectives are supposed to be that their members benefit from the services they offer, whereas for-profit insurers' operational priorities are assumed to be the interests of their shareholders.
The same legal insurance code applies to mutual and non-mutual insurers. Mutual insurance businesses, on the other hand, are recognized as a special case under this legislation. They are non-profit partnerships with no shareholders or capital. Surpluses can benefit mutual members, but only by reducing membership fees by the same amount for everyone, whereas for-profit insurers give significant profits to their shareholders.
When we look at the governance structures of capitalist insurers, we can discover that, as is the norm in stock companies, capitalist insurers are managed by a board of directors or a surveillance council and rely on executive committees to carry out the decisions they make. Directors or members of the surveillance council are chosen for a defined period by general assemblies of shareholders, whose votes are weighted in proportion to the amount of capital they own in the firm. Directors are not required to be stockholders.
In the case of mutuals, authority is delegated to directors on the board who are elected by members. According to the core concept of social economics, one person, one vote, every member's voice has the same weight in the vote. Depending on the complexity of the governance structure, members' representatives are elected either at the local level, after which they elect the directors from among themselves, or at the national level.
In fact, there is no real black and white side in this story. Mutual insurers can be hybridized in the broad sense of combining dissimilar entities by acquiring or forming subsidiaries from non-mutual issuer companies.
How can we leverage distributed ledger technology (DLT) to create Covest Finance Protocol in order to enable all mutual insurance scalability and sustainability aspects as follows:
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