Tuesday 3 March 2015

MUTUAL INSURANCE

Some insurance companies are owned by shareholders; others are mutual, meaning that they are owned by their customers. The advantage of this arrangement is that any profits from the year in question can be paid out to the policyholders, thereby (in effect) reducing the premiums and making everything cheaper.

My car insurance is with a mutual company, and the results for 2014 have just come in. I will get a rebate of kr.861, thereby reducing my annual premium of kr.4,774 by a tidy sum.

The question then becomes, why isn't all insurance done through mutual companies? The answer is that it only really works if you have a stable base of customers, have enough data to be confident about losses, and can then put figures on those losses relatively quickly after the year end. Third party motor insurance works well; insuring an oil rig doesn't.

Walter Blotscher

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