In this guest blog, Steven Hill, Head of Policy, Royal London Group (UK) and Xavier Michel, Public Affairs Director, Aéma Groupe (France), who each published manifestos this year, highlight the essential role played by mutual players in the economy and society of the countries in which they operate.
Introduction
Mutuals have a long history in both the UK and France. The first UK mutual can be traced back to 1696, with similar organisations appearing in France around 100 years later, towards the end of the eighteenth century.
The concept of mutuality has, however, proved more durable in the latter. According to the latest data from ICMIF, mutuals and cooperatives account for over 50% of the French insurance market, while in the UK the figure is just 8%.
Despite this significant disparity, mutual entities in both countries face similar opportunities and challenges, mainly because of their shared characteristics. At a time when consumers everywhere want companies to act more responsibly, the centuries-old model of mutuality, where firms are driven by a strong sense of purpose and can take a longer-term perspective, has arguably never been more relevant.
2024 has witnessed significant political upheaval in both the UK and France. And while it would be inaccurate to claim that mutuality has been at the forefront of political discourse in either country, it is certainly the case that mutuals have an important role to play in helping to deliver sustainable economic growth in both countries, with the benefits this generates for wider society.
Royal London and Aéma Groupe are leading mutual and asset management firms in the UK and France respectively and recognise the need for mutuals to be involved in shaping and influencing public policy developments for the benefit of their members. Separately, both organisations published manifestos earlier this year, seeking to promote the role of mutuality in addressing economic and social challenges.
Below we provide a summary of the two documents and consider how mutuals can help shape public policy in a positive way over the next decade.
Doubling the size of the UK mutuals sector
The Labour Party’s general election manifesto contained a commitment that did not generate many media headlines, but which could make an important contribution to the new Government’s central ambition to grow the UK economy.
The document stated that Labour would aim to “double the size of the UK’s cooperative and mutuals sector“ and “work with the sector to address the barriers they face, such as accessing finance.”
Royal London strongly supports the Government’s ambitions in this area. Despite the proud history of mutuals in the UK, the country lags many others when it comes to the prominence of mutuals vis-a-vis other corporate structures. The lack of policy support for the sector, particularly in its ability to raise capital, has seen demutualisation become an all-too-common feature of the UK’s economic landscape.
This is not about demonising the listed sector. Shareholder-owned businesses have much to offer and form the very bedrock of capital markets which have served the UK so well in its development over the years. Rather, it is about enabling mutual companies to compete on a level playing field with other business models and, crucially, ensuring there is a strong mutuals sector in the UK that benefits consumers by delivering greater choice and competition.
In financial services, mutuals are unique, in that the company can share its profits with its customers who own the business. This does not make it inherently better than any other model, but it does make it different. At Royal London, for example, since 2007 we have paid more than GBP 1.7 billion directly into member pension pots through our Profit Share scheme, including GBP 163 million in 2023. This alignment of interests between businesses and consumers has the potential to provide a competitive benchmark for organisations that share their profits with external shareholders
To help the UK mutuals sector to thrive and grow, there are two overarching reforms which the Government should pursue as a priority.
The biggest barrier to mutuals expanding is their inability to raise capital in the same way as listed companies. By relying solely on member funds and their own retained earnings, mutuals do not have the same scope to generate capital through external investment. Introducing some form of mutual capital instrument, like that which exists in Australia, would help to address this. It would allow external investors to buy shares in mutuals, but mutuals would retain their unique shared-ownership model because investors would be limited to one vote each to protect the voting rights of customers.
Such a reform is long overdue, although we acknowledge it would take time to work through the practical details and implement the necessary legislation. More immediately, the new Government could send an important signal about its ambitions for the sector by appointing a Minister for Mutuals. By explicitly including mutuals in a minister’s responsibilities, the civil service support system for the sector would immediately be upgraded and ensure mutuals were a critical part of the decision-making process within government across business and economic policy.
A Minister for Mutuals would act as a champion for the sector within Whitehall, helping to deliver the introduction of a mutual capital instrument and other changes that are necessary for the sector to flourish.
Mutual insurers as cornerstones of a social savings and investments union
The European Union stands at a crossroads. The new European Commission will soon take office and present its work programme, a programme undoubtedly shaped by the recently published reports by Enrico Letta and Mario Draghi. The overarching priority: boosting investments to increase the European Union’s competitiveness.
In an overly competitive work programme, some might think the mutualist sector has no place. They could not be more wrong.
Both Letta and Draghi highlight the need to channel financial support for the transition but also to safeguard the European welfare model and the social dimension of our single market. That will require a fundamental change: the better alignment of that market, of European policies and tools with our social, environmental and economic ambitions. In order to achieve that alignment, the European Commission finds a concrete example to follow in the mutualist sector.
Mutuals put their economic strength at the service of the public good. Their specific governance structure allows them to put citizens’ concerns and wellbeing at the core of their activities. At Aéma Groupe, for example, we combine the technical expertise of all our teams and our thriving economic performance (with EUR 16.1 billion in combined sales) with a deep social and environmental commitment.
As the EU aims to become a Savings and Investments Union, it is also worth remembering that mutualist insurers are also institutional investors. Collecting and investing the savings of Europeans, they are key players in the ecological transition. Yet, as highlighted in our manifesto for the EU elections, there are currently clear obstacles which prevent the channelling of investments for that transition.
A first clear obstacle is the lack of shareholder democracy, the development of which is hindered by a myriad of national regulations and outdated caselaw. Currently, the listed companies of our portfolios are not obliged to respond to stakeholder requests about their environmental and societal strategies. Additionally, the rules governing the percentage of shareholding required to propose resolutions need to be updated, at a time when corporate mergers are creating giants and the amounts required to voice opinions are becoming increasingly inaccessible to European investors. Addressing these bottlenecks can help ensure that our push for competition does not happen at the expense of our environmental ambitions.
A second clear obstacle is the lack of liquidity of equity investments. The investments needed for the environmental transition and green reindustrialisation are colossal. A substantial portion of these must come from unlisted entities (private equity and private debt). Those assets are less liquid than others and the responsibility for covering that liquidity risk currently falls entirely on the insurer. Therefore, while the European life insurance market is valued at nearly EUR 668 billion, the flow of European citizens’ savings into transition-critical assets is very limited. Better risk-sharing between the EU and institutional investors would help build the confidence necessary for European savers to invest in these instruments. Setting a strategy to bolster private equity financing is one of the top priorities of the next European Commission. The introduction of a European public mechanism offering a guarantee for investments in private equity should be part of it.
The successful completion of the Savings and Investments Union will determine the future of the European Union. Mutualist insurers are essential partners in that endeavour: channelling investments to key sectors for the transition, protecting citizens and companies from all risks, and ensuring that the European social model prevails. Involving them in the future works of EU Institutions is essential in ensuring that President Ursula von der Leyen’s vision for a sustainable competitive Europe becomes a reality.
