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Strike force for mutuality

Mutuality is dead, long live mutuality! It is time the marketplace woke up to the new mutuality.

Given recent events, it is understandable why some people may be questioning the long-term future and viability of the mutual sector in this country. It is certainly true that, to survive and flourish, the remaining mutuals will need to re-examine the way they apply their principles and engage themselves with their customers.

However, I would argue that, in the wake of intense competition, the same applies to investor-owned companies. As such a universal review occurs, mutuals which see this as a real opportunity and not a threat can steal a march over their plc peers.

As the wave of demutualisations has swept through the industry in the last decade, it has become an almost universal assumption that customers are motivated solely by the short-term gain of windfall payments. But the recent vote at Standard Life has shown that many people still value and recognise the benefits that mutuality should bring them – whether through increased returns, lower charges or better engagement as sole beneficiaries.

That said, a company&#39s ownership structure alone is no longer sufficient to guarantee loyalty and these benefits need to be delivered in practice.

In an era of increased competition and transparency, customers are pushing for a new form of mutuality which will require mutuals to deliver in two key areas. First, mutuals must demonstrate that they can provide goods and services of a quality and at a price which is comparable or better than plcs. Second, they must communicate and engage with their customers in a way which is truly accountable and meaningful.

Hollow or bogus gestures will simply serve to weaken the links which make mutuality potentially so powerful, even in today&#39s marketplace.

At the heart of mutuality is not only the ideal that the business should exclusively serve the interests of its customers but also that these customers should be able to exercise their ownership by being actively involved in shaping the future of the business.

If this affinity is lost, then the bedrock on which mutuality is built crumbles. This has been reflected in the falling market share of the mutuals within the life industry.

Nowadays, around 25 per cent of total UK assets are accounted for by UK mutual life offices, with around 24 per cent of premium income attributable to mutuals. With more mutual offices, such as Friends Provident and Equitable Life, signalling their intention to demutualise or be bought, this market share is likely to fall in future.

A number of technical factors have helped push some organisations into demutualising. Financial pressures such as the pension review and lower bond and equity yields, which have depressed interest-rate calculations on policyholder liabilities, have caused some companies to consider a change of status.

Likewise, a number of market pressures, not least the arrival of low-cost, low-margin players, have brought increased consolidation to the industry. The result has been the creation of ever bigger financial services groups deriving greater economies of scale from their merged companies.

Mutuality delivered properly, however, still offers notable strengths. The quality of business is particularly strong, with many mutuals outperforming their plc counterparts in terms of loss and lapse rates. Good relationships with financial advisers provide opportunities for the cross-selling of products and the building of long-term associations with customers, who value the quality of the advice and perceptions of service and trustworthiness they receive.

Improving engagement and accountability is at the heart of defining the new mutuality. Initiatives such as the ABI&#39s Saltr project and the Government&#39s planned league tables provide a concrete way of driving this forward.

The remaining mutuals will also have to play their own part by revisiting and, if necessary, revising and re-enforcing their traditional strengths. This will involve better and more meaningful engagement with customers and the delivery of appropriate solutions to the millions of people who remain financially underprovided or somehow excluded in this country.

By highlighting and maintaining the competitiveness of their products, while providing a service that meets the exclusive needs of their customers, the remaining mutuals can point to a bright rather than a bleak future.

In many other aspects of life, mutuality is thriving, even in countries such as the US where mutual organisations are playing an increasing role in the provision of welfare, housing and financial services. They are finding and exploiting areas where investor-owned companies either do not want to go or cannot effectively compete.

It is a lesson that the remaining mutuals within the UK can and should pick up on. It is worth remembering that some of the most famous names in the world are mutual or co-operative societies – including Barcelona FC.

If the customers of a mutual feel a lack of accountability and that the organisation is not acting in their best interests, the temptation will remain to collect their windfall and go elsewhere.

Clearer communication from mutual providers and a more effective dialogue with their customers should bring a much clearer expression of the benefits that mutuality can bring. It is important that this form of ownership is maintained to bring greater balance and choice to the consumer.

If this new mutual approach is adopted by the remaining societies, then collectively they will play a pivotal role in shaping the future of the UK financial services industry.

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