Mutuals 1.0: products and memberships

All but the largest mutuals and friendly societies (“mutuals”) have a limited protection product range. This means some are sub-scale, needing to write more business to ensure their long-term future.

Mutuals have a range of membership offerings. This article examines the pattern over time of traditional memberships, supported by branches and (often) face-to-face meetings.

I restrict coverage to long-term protection products, rather than (e.g.) investments or general insurance, although I briefly refer to other mutuals. A future article will look at Protection 2.0.

Mutuals

By the late 1800s there were around 27,000 registered mutual societies. Estimates of membership in the early 20th century vary between 6.5m and 9m.

Although numbers dropped when the Welfare State was introduced, as recently as 1995 over half the UK insurance industry was in mutual ownership. Today there are fewer than two hundred friendly societies and mutual insurers, with a market share of c9% of the UK insurance sector. Source: Association of Financial Mutuals (AFM)

The AFM reports the following based on a July 2023 survey and their members’ report and accounts. The top 6 AFM members, measured by member count, still have over 6m members, although the nature of membership has (often) changed substantially over the years.

All the mutuals above offer protection products to individuals, with some offering savings, investment and general insurance. Benenden and The MDU are discretionary-mutuals.

Stepping briefly outside our long-term protection focus, some recently set up mutuals have sharing arrangements which reflect the “old-fashioned” sharing nature of mutuality, including:

• Fire & Rescue Indemnity Company (2015) for fire & rescue authorities
• Education Mutual (2018) for schools – staff absence
• Nexus Mutual (2019) for tech-savvy individuals

Over time, insurance has placed less emphasis on community, with some mutuals acting as corporations. All three examples above suggest that the pendulum may be swinging back again.

Products 1.0

The history

Before Scottish Provident launched Self Assurance in 1996 the emphasis was on various forms of pensions and investment business.

Around 1995 a former Equitable Life employee explained to me that their protection range existed only to avoid losing more lucrative business.

That lack of focus in protection 1.0 meant no coherent protection strategy and a minimalist approach to protection products. A company might have Income Protection (IP) and whole life.

These product ranges did not facilitate an holistic approach to protection advice or purchase. Critical illness cover (CIC) had been introduced into the UK market in 1986, but benefits had to be bought separately. Proprietary companies offered no added value benefits to their policyholders, while some mutuals offered socially-focused membership – more of this below.

The challenge of scale

Today some mutuals are clearly sub-scale, measured (e.g.) by calculating the ratio of expenses to premiums. You can easily find a mutual where this ratios is over 50%. Expenses per member is another interesting ratio. More on the scale issue may follow in a future article.

Some don’t help themselves, being IP specialists. Others are even more niche, restricting to age-costed IP. They suffered when Legal & General (L&G) entered the fray in 2019.

Membership 1.0

Some mutuals emphasize traditional (social) membership, perhaps providing only a small discretionary hardship benefits: those not offering regulated financial products are outside the scope of this article. Foresters Friendly and Oddfellows offer social membership and financial products.

Today some AFM members major on financial products and direct member benefits only through a health-focused app, in line with their proprietary peers. It seems just two, Foresters Friendly and Oddfellows, offer financial products and social membership.

Foresters Friendly

Foresters Friendly membership is obtained either through buying a financial product or by taking out an annual subscription at a cost of £25. Benefits include:

• Discretionary grants. c£1.7m was returned to members in 2023.
• Annual charity appeals. Raising £47k-120k in recent years.
• Social and community events. 180 branches held events in 2023.

The summary of the court white paper suggests that Foresters Friendly is going through extremely challenging times. The 2020 annual report opened with:

“… the Society’s key challenge is the scale of our insurance business. Our cost base is too high for the level of new insurance business written and policies maintained.”

The 2022 annual report showed little improvement. CEO Rachel Hardy said:

“The Society is at a crossroads in terms of the future strategic direction it chooses to follow for both its insurance business and Court activities.”

Capital coverage was 112% in the 2023 SFCR. Time will tell how this plays out.

Oddfellows

Oddfellows membership costs £25-£35 p.a. Separately, Unity Mutual offers their financial products.

Some Oddfellows membership benefits:

• Social benefits e.g. online and face-to-face events and activities.
• Give back through volunteering, fundraising and society involvement.
• Member offers e.g. cinema tickets, holidays, cars, groceries.
• Travel and holidays e.g. cruises, short breaks, summer holidays.
• Care benefits including care, convalescence, financial aid, legal and other helplines.

Oddfellows also face challenges. Website factsheets give the following, with membership split into “B” (branch) and “I” (insurance products):

Strikingly, branch count and members fell by c20% over the 6-year period. Members number peaked in 2021 (Covid) and declined significantly since.

Where next?

Scale and products

At around £780m of new business annual premium, the individual protection market is not large. Nonetheless by having a full protection product range – life cover, IP and CIC – there is another room for several more players to get to scale. We’ll say more about this in a Protection 2.0 article.

Membership

Those offering a traditional form of membership may be on a road to decline. Introducing a Protection 2.0 range might help them, but there are other membership-related options we’ll outline in a Protection 3.0 article.