The concept of mutual insurance is that it is organized primarily to insure the risks of its owners at minimum cost. Thus, the mutual insurance company is a company owned, operated and controlled by its policyholders. There are no shareholders because policyholders elect the board of directors or trustees, and the board elects or appoints officers to run the company.
The mutual company assumes the risks of its policyholders and its main objective is to obtain insurance at cost price without charge of commission. In other words, any proceeds earned through its operations will be partially returned to policyholders as dividends or applied to the next year’s premium. The rest is used to strengthen the business by accumulating its surplus. Likewise, when there are losses, the same principle applies.
There are two types of mutuals, the mutual assessment and the non-assessment mutual. In the former case, the society typically charges a modest fee to draft and issue a policy, then assesses each member as necessary to meet claims and operating expenses. The latter type of mutual charges initially, a rate calculated to be sufficient to cover all expenses and losses. This type is more or less managed on the basis of a joint-stock company.
The first non-life mutual company was founded on the initiative of the famous American statesman Benjamin Franklin and bears the unusual name of Philadelphia Contributionship for the insurance of houses against loss and fire. It may come as a surprise, but the company is still in operation.
The first mutual life insurance company in the Philippines was established in 1957, Alpha Mutual Life Insurance, which no longer exists. The second and only life insurance mutual in the country was the Insular Life Assurance Company, which was previously a stock company but was approved by the Insurance Commission to mutualise in 1976. The Office of the Insurance Commissioner approved the Insular Life’s mutualization plan, making it the first Philippine life insurance company to mutualize.
Eleven years later, in 1987, Insular Life became a fully mutualized company. The pooling process was completed and transferred ownership of the company from shareholders to policyholders. Insular Life is the only remaining national life insurance mutual in the Philippines. Sun Life Assurance Company of Canada and Manufacturers Life Insurance Co. are subsidiaries of Canadian-based insurers that previously demutualized and are now listed on the Philippine Stock Exchange.
The author is a risk management consultant and editor of Insurance Philippines magazine.