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July 27 2012
The questionable ethics of financial service providers have made headlines, so are ‘not for profit’ mutuals worth considering? David Zerny of income protection specialist PG Mutual discusses
The financial services sector seems to be mired in one scandal after another. After the shock of banks going bust and having to be bailed out by the taxpayer, we have seen £9bn set aside to fund compensation for the miss-selling of PPI; rows caused by excessive ‘fat cat’ bonuses for city bosses and Barclays’ chief executive forced to resign following the bank’s £290m fine for the fixing of a key market rate. A common feature seems to be a lack of accountability and transparency in the way these institutions operate.
Some of us remember the time when we would contact a nearby insurance broker, or seek help from a local bank manager, who knew us personally. As for-profits providers sought ‘economies of scale’, this level of service largely disappeared with the increasing use of IT to centralise decision-making processes, which once rested with a branch, or regional manager. In doing this, did they lose sight of the need to strike a
fair balance between satisfying their shareholders and serving their customers’ needs? At a time when the public is questioning who they can trust to look after their financial interests, there is an alternative, and the features which make mutuals stand out are worth examining.
Mutuals provide essential products and services such as savings, investments, mortgages, protection, pensions and health care. They include building societies, friendly societies, insurers and healthcare providers. Several date back to the 19th century, and have proved the robustness of their business model by continuing to serve their members through the two World Wars and the 1930s depression.
A public limited company (plc) is owned by external shareholders and will pay dividends to shareholders out of any profit they make. In contrast, a mutual organisation is owned exclusively by its customers or members, and exists solely for their benefit. This means that any profits are usually re-invested, with the long-term interests of the business and its membership in mind. Members are entitled to attend annual general meetings and can vote on such matters which concern them, such as the direction of the mutual’s business strategy or executive remuneration.
At a time when some financial institutions are struggling to win the public’s trust, there are many success stories from the mutual sector. One is the AOP’s endorsed income protection provider. PG Mutual is a registered friendly society founded in 1928, specialising in offering income protection cover to healthcare professionals. Its income protection plan provides a replacement income to a member when they suffer an injury or illness which prevents them from working. Many AOP members and their staff have already taken advantage of a discount of 20% for each of their first three years of membership.
“We know that being able to trust your insurer or bank is of paramount importance,”said chief executive, Mike Perry (pictured). “Most would agree that being able to enjoy an income when off work sick is essential if you want to maintain your current lifestyle. Yet very few have any income protection cover in place and, an issue may be that people are looking for a provider they feel able to trust to settle a valid claim promptly and efficiently.
“At PG Mutual, our members are at the heart of everything we do. Last year, we paid 98% of all claims received. Any surplus we make is returned to them, which means they can enjoy peace of mind from knowing their income is protected and they also have an investment sum to look forward to receiving at the maturity of their policy.”
A further feature of the society, which is valued by members, is that claims are not penalised – so if you take out cover and are unlucky enough to suffer ill health, your subscription does not increase as a result. Claims are handled by an expert, friendly team based at the society’s UK head office.
PG Mutual members stay with it for 22 years on average. This is largely because the principles on which it was founded over 80 years ago – the importance of accountability and openness in the way it is run, so that members can trust the team to look after their best interests – still matter to it today.
Next time you are choosing which insurance or financial services provider to use, consider the ethos and member benefits of a mutual and compare it with a large corporate plc, which may be motivated by making a profit, rather than serving you as an individual.
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