Mutual general insurance companies

Hi all.
Ok - writing this at 5pm the day before an exam at 2pm the next day may be rather late in the day. But I thought Id try just in case anyone happened to check the forums and respond before tomorrow lunch time!

This is not something that I have ever seen come up on a paper. But I just thought of it - and its the kind of nasty thing that could catch people out.

Mutuals are "owned" by the policyholders themsleves, rather than shareholders. Ok. Now I understand how that works in life insurance (e.g. with profit funds with low guaranteed sum assureds where if experience is good everyone's life assurance sum or endowment assurance etc gets increased by bonuses thus distributing the "profit" to the policyholders).

But how does this work in GI?

Unlike life, most GI policies never pay out. So how do policyholders (who I assume are the "owners" like in life insurance) see any profits that may emerge? Do people get periodic part refunds of premium? Surely claims arent settled at higher than fair value to distribute the surplus!?!? Who (and how) do "profits" in a mutual phyiscally get distributed?

Thanks to anyone who reads this and can give even a guessed response! Like I say I very much doubt this kind of thing would come up...but its something that came into my head!

Greg

 

The big difference is that the premium charged can be, and are likely to be, lower.

Just like the co-op food store!

It doesn't mean under all cases it will be.

The big insurance mutuals are the P&I clubs. Another reason for them is lack of cover available under traditional sources - usually due to size of the claims or the frequency of them.

They can charge less because they don't have to distribute profit (i.e. dividends) to people who own them. This means they can have a lower return on capital also and loading factors. Also, retrained profits from previous years can be used to bring premiums down - but of course some smoothing and equalisation will be going on in years that are really good/bad.

 

thanks fiend - thats very useful!