A message from your CEO - the Challenges Facing Mutuals
A reflection by Stephen Mann, Chief Executive
In common with the wider financial services sector, mutual
societies are coming under increased scrutiny.
Events such as the credit crunch, the
financial meltdown in Iceland, bankers’ bonuses and financial
frauds of the size and scope of Madoff’s “ponzi” scheme have
seriously dented customer confidence in financial institutions.
With the increasing sense that those companies
which are answerable to their shareholders - rather than their
customers - may have a conflict of interests, mutuals which are
owned by the customers they serve have a number of obvious
attractions.
But while it’s good to be a mutual, it doesn’t
automatically follow that you are a good mutual. I believe any
business that accepts customers’ money must be prepared to account
for its actions and demonstrate that it can be trusted.
Recent financial scandals have clearly raised
awareness and concerns about how financial services companies are
run, so it is perhaps inevitable that the spotlight should
eventually fall upon mutuals too.
There has been much recent press coverage,
particularly in The Mail on Sunday, about the challenges facing
smaller mutuals. The journalists concerned have good records of
raising consumer issues and should be taken seriously. They have,
quite rightly, raised questions over how sustainable some of the
smaller companies may be.
As it becomes increasingly expensive to stay
in business, there is a minimum size or threshold at which a
company is likely to remain viable. If this means some businesses
have to close because they can’t afford all of the protections they
need to put in place to safeguard their members’ money, I believe
this can be no bad thing.
The Financial Services Authority is currently
assessing how closely aligned some mutuals are to their members
financial interests. I believe that where a business has lost sight
of its purpose and no longer focuses upon members, the best course
of action is for that business to close.
It is only when those financial services
providers that are likely to fail can no longer accept customers’
money that trust can be restored.
Where does this
leave Police Mutual?
Some general principles are now emerging. To
succeed in the future mutual businesses must;
- be large enough to absorb the costs of safeguarding their
members’ money and protecting against difficult market
conditions.
Police Mutual has the size and scale to do this.
- keep their running costs as low as possible as these impact the
returns that are paid to members. These costs can include
attracting and securing new customers or administering existing
policies, and Police Mutual does well on both counts. Our network
of Authorised Officers means we do not pay the costs of commission
and we constantly challenge the way we operate to ensure we are as
efficient as we can be.
- have a real connection with their customers and offer tangible
benefits.
Police Mutual’s exclusive focus on the Police Family gives us a
head start. We can tailor our products accordingly. For example,
unlike other providers, our life insurance premiums are not
‘loaded’ to reflect the perceived risks associated with being a
Police Officer.
- keep members’ trust.
Investing for the future can be a long-term commitment, and members
need to know they will be treated fairly throughout. Police
Mutual’s customer satisfaction scores are high by industry
standards, but I intend to set a new benchmark.
- demonstrate why customers should choose your company over
others.
Police Mutual not only provides financial products and services, we
provide financial education for Police Officers and Police Staff at
various stages of their career. The Society also supports Police
forces - through the provision of free courses and meeting
facilities, for example – and we actively looks for ways to extend
this support.
Whilst I recognise we need to demonstrate even
more tangible benefits of doing business with the Society in order
to take the business to the next level, I have every reason to be
confident in Police Mutual’s future.
Despite difficult market conditions we
continue to achieve good results. This was reinforced by industry
results published by the Association of British Insurers (August
2009). They demonstrate that, during the previous year, there was a
20% decline in new savings plans - we achieved a 3% increase. For
the same period, there was a 48% decline in unit-linked and
With-profits business whereas we saw a 66% increase.
However, good business results alone provide
no guarantee of future success. So we have recently completed a
sophisticated and robust planning process and we are starting to
implement detailed plans which will provide us with a firm platform
for the future.
Our overarching strategy is to build a
business based around the needs of customers. I believe there is an
increasingly important role for a mutual which operates for the
benefit of its customers and where those customers have a genuine
need for what it offers.
However, in a world where there is great
cynicism and little trust, I acknowledge that we must communicate
what we stand for and how we operate – as well as the benefits of
doing business with us – far more clearly.