OREANDA-NEWS. European mutual insurance companies are at an inflection point in which they must embrace change or risk losing relevance and market share. Having remained largely unchanged for decades, the speed and agility with which European mutuals can react to the dynamically changing market landscape will be essential in determining the sector’s future growth and prosperity.

A new report from A.M. Best, titled, “Future Proofing European Mutuals,” explores the strategic considerations faced by European mutuals, including consolidation, governance, recognition of the need to innovate and capital optimisation.

“Mutual insurers have historically proved to be resilient thanks to their solid links with affinity groups and member-based organisations,” said Ghislain Le Cam, CFA, associate director and co-author of the report. “These durable bonds and the ethos to operate in the best interests of their policyholders have rewarded them with strong loyalty among their members and in most instances, a high degree of customer satisfaction. Inevitably however, some mutuals are struggling to adapt. It will be these companies that could begin to demonstrate weaker fundamentals going forward, particularly if the low interest rate environment persists and as anticipated disruptive innovation occurs across the wider insurance space.”

A.M. Best expects mutuals to continue to report relatively higher loss ratios than stock insurance companies. Carlos Wong-Fupuy, senior director, analytics, added: “In many instances, this reflects mutuals’ conservative approach to reserving, partially compensated for by lower expense ratios. This conservatism, together with the ethos of putting their members’ interests at the heart of their business models, generally imply a solid balance sheet strength for mutuals.”