The facts of mutual insurance | Reynaldo A. De Dios – Business Mirror

The concept of mutual insurance is that it is organized primarily to insure risks for its owners at minimum cost. Thus, the mutual insurance company is a corporation owned, operated and controlled by its policyholders. There are no stockholders as the policyholders elect the board of directors or trustees, and the board elects or appoints the executive officers to manage the company.

The mutual corporation assumes the risks of its policyholders and its primary purpose is to secure insurance at cost with no commission loading. In other words, whatever proceeds earned in the course of its operations will be partly returned to the policyholders as dividends or applied to next year’s premium. The remainder is used to strengthen the company by building up its surplus. Similarly, when there are losses, the same principle applies.

There are two types of mutuals, the assessment mutual and non-assessment mutual. In the former case, the company usually charges a modest fee to write and issue a policy and then assesses each member when necessary to meet claims and operating expenses. The latter type of mutual charges at the outset, a rate calculated to be sufficient to defray all expenses and losses. This type is more or less run along stock company basis.

The first mutual non-life company was founded through the initiative of the well-known American statesman Benjamin Franklin and bears the unusual name of the Philadelphia Contributionship for the insurance of houses from loss and fire. This may come as a surprise but the company is still in business.

The first mutual life insurance company in the Philippines was organized in 1957, the Alpha Mutual Life Insurance, which no longer exists. The second and only mutual life insurance in the country was the Insular Life Assurance Company, which was formerly a stock company but was approved by the Insurance Commission to mutualize in 1976. The Office of the Insurance Commissioner approved the Mutualization Plan of Insular Life, making it the first Filipino life insurance company to mutualize.

Eleven years later in 1987, Insular Life became a fully mutualized company. The mutualization process was completed and transferred ownership of the company from stockholders to policyholders. Insular Life is the only remaining domestic mutual life insurer in the Philippines. Sun Life Assurance Co. of Canada and Manufacturers Life Insurance Co. are subsidiaries of Canada-based insurers which have demutualized before and are now listed on the Philippine Stock Exchange.

The author is a risk management consultant and Editor of Insurance Philippines magazine.