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Two-thirds of public confused by demutualisation

Almost two-thirds of the UK population do not understand the rationale behind demutualisation and the negative effect this can have on investment performance, according to research by the Association of Mutual Insurers.

Seventy per cent of the 1,013 adults surveyed are unable to give a satisfactory explanation of the differences between a mutual organisation and a public limited company.

Over half of respondents are familiar with the term mutual in a business context but the results highlight widespread lack of understanding of the differences in structure and ownership between a mutual and a plc.

Perhaps unsurprisingly, given the Standard Life situation, people in Scotland have the greatest understanding of the differences between the two types of organisation, with 48 per cent saying they understood the debate compared with 29 per cent in the South-east and 35 per cent in Northern England.

The AMI says this widespread lack of understanding is dangerous because of the detrimental effects that demutualisation can have on a policyholder’s investment. It says its research shows that organisations which demutualise pay out up to 14,000, or 33 per cent less, on a 25-year with-profits policy than those that remain a mutual on average.

Vice-president of communications Rachel Griffiths says: “Our concern is that policy-holders and members are not sufficiently knowledgeable to make a balanced and informed judgement in the demutualisation debate.”

But Standard Life spokes-man Barry Cameron says: “The 2.4 million with-profits policyholders that we are concerned with are fully aware of the reasons why we are planning to demutualise because of an unprecedented level of communication from us. The benefit of a mutual versus a plc in terms of performance is not so black and white. We could previously afford to pay the benefits of mutuality to our with-profits investors but we cannot anymore. Also, our with-profits customers have dropped from 50 per cent to 33 per cent of our customer base so the risk to reward balance has bec-ome skewed.”

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