The Geneva Papers on Risk and Vol. 26 No. 3 (July 2001) 327±328

The of Insurance : Mutuals, and Beyond Comments on the paper by A. Hennequin and P. Peugeot

by Miguel Angel MartõÂnezÃ

On the occasion of the Third Meeting of the Amsterdam Circle of Chief Economists, held last February, I had the opportunity to set forth some ideas about the advantages and disadvantages of the mutual organization as opposed to the public . The ®rst question raised was about the forms of growth of companies, because they have limited access to the capital market. The most ef®cient question to ask might rather be: to keep the highly pro®table, what will allow an accumulation of pro®ts such as to guarantee self-®nancing for this growth? This business growth has also taken place in the mutual companies through the con®guration of subordinate public companies, which undertake part of the insurance business but remain under the political control of the source insurance company. Another question raised at the meeting was about the reasons why a mutual insurance company should become internationalized. Initially, this internationalization process pro- motes the development of a modern management structure while at the same time responding to economic globalization and the satisfaction of multinational clients. Mutual insurance companies can be internationalized via subsidiaries with the format of public companies, or even via alliances and other business networks, getting other bodies of a similar nature involved in the local markets. By this means, the costs or bene®ts of the international business can be shared by the mutual insurer and by the partners in each country. With regard to the potential of mutual insurance companies to attract management talent, I sincerely believe that the most important driving force is the offer of professional development to the company'smanagers at the same time that business grows. Another thrust is the use of compensation mechanisms such as stock options when the mutual company holds the policy control over its subsidiaries. In addition, mutual insurers provide customers with solutions which are very close to their interests, as the pro®ts obtained in the business can be balanced in the short and long term in order to bene®t the policyholders, without losing sight of service quality and ef®ciency goals. Wemust not forget that the mutual philosophy obliges the management teams to remain close to the policyholders while also maintaining a principle of social solidarity as the company philosophy. Finally, with respect to the dif®culties posed by ®nancing the growth of mutual and the demutualization process currently underway in certain companies and insurance sectors, it must be stressed that in some cases, the purpose of the demutualization is

à FundacioÂn MAPFRE Estudios, Spain.

# 2001 The International Association for the Study of Insurance Economics. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK. 328 MARTIÂNEZ to facilitate the growth of the body and resolve problems of con¯ict of interests between insurers and executives. Mutual insurers will continue to play an important role in the worldwide insurance market, provided that they can remain ef®cient and balance their management policies between the constant generation of pro®ts and the orientation of their actions towards competitiveness and good customer service.

# 2001 The International Association for the Study of Insurance Economics.