Page 1: Introduction
CIS operates in one of the most dynamic and complex insurance markets in the world. Insurance is one of the UK’s major industries, with an estimated 700 businesses providing investment and protection products to more than 46 million customers. In recent years, competition in the industry has intensified. To survive and continue to prosper, banks, building societies and life assurance companies are having to adapt their business operations and their strategies.
One result of this process has been the trend for insurers and building societies to forsake their mutual status and become public limited companies. This case study looks at the reasons behind such a move. It examines the impact for customers and explains why the CIS as a life assurance society is committed to maintaining its co-operative basis of trading.
So what exactly is a mutual organisation?
What makes a mutual organisation different from a public limited company (plc) is that it exists only to serve its members or customers. A mutual society does not have any outside owners or shareholders and so all profits are applied for the benefit of its customers.
A plc, on the other hand, is owned by its shareholders who require an ongoing return on their investment in the form of dividends paid out of any profits the company makes. As a result, they will also strongly influence the way the company is run and managed.
The most recognisable form of mutual organisation in the UK is the building society whose origins date back to the 19th century when people would share risks and pool resources to buy every member of the group a home. The same principles of self-help led to the formation of the co-operative movement, with the first co-operative set up in Rochdale in 1844. Co-operatives operate in a similar way to mutual organisations.
The Co-operative Insurance Society (CIS) was established in 1867. It was the world’s first co-operative insurer and today remains the only co-operative insurer in the United Kingdom. The Society is not strictly a mutual in that it does have a limited share capital. But no dividends are payable and only nominal interest is paid to the main shareholder, the Co-operative Wholesale Society Limited. The absence of shareholder commitments means that money is invested solely for the benefit of customers.
CIS is one of the most successful insurers in the UK. The Society provides for the insurance and investment needs of around 31⁄2 million families with a competitive range of products putting it in the top ten of UK personal insurers. In recent years, CIS has become a leading provider of personal equity plans with customers investing over £860 million into its three unit trusts.