Time to grow up and face the music together - May 2004
Mutual captive insurance companies are captives or cell captives formed by a group of companies, normally within the same industry. But, while this form of insurance makes good business sense, it also requires companies to be able to set aside petty competitive issues and focus on their common risk profile and the benefits to be gained by sharing risk and pooling their risk management resources and expertise.

The main difference between a mutual captive and a conventional insurer is that the former provides long-term benefits to its members by means of premium subsidisation, expanded coverage and eventual dividend declarations as a result of risk sharing; while the latter simply focuses on increasing shareholder wealth over the short to medium term.

Quite simply, mutuals are cost effective and flexible insurance vehicles for companies that operate within the same business environment, which is often perceived as more risky than it really is by the insurance market. The players within a specific industry understand the risks and exposures within that industry - whether insured or uninsured - far better than any conventional cell captive or traditional insurer ever can.

Some good reasons to join a mutual are: common purpose or need; guaranteed and flexible coverage; attractive terms and pricing ? not always the cheapest, but the mutual is in the business to provide long-term stable solutions to its members; control of the insurance programme; and, long-term partnership ? insurance is not treated as a commodity, but rather focuses on building capacity and expertise.

Despite the highly competitive nature of today's business world, like it or not, companies operating within a specific industry share the same primary and systemic risks in the course of their normal operations. It is a perfect fit to also share these risks within the insurance and risk financing environment, pooling the risk and insuring within a mutual. Thus they share resources and expertise without giving away intellectual capital or their competitive edge.

Mutuals are not suitable for all industries and some industries are more suited to this concept than others. This includes the oil, petroleum, energy, cell phone, mining, medical care provision and telecommunications industries.

Instead of five separate industry players maintaining five separate insurance and risk financing programmes, and being subject to the management costs a number of separate insurance vehicles, mutuals pool their resources and harness bulk buying power for reinsurance.

In South Africa this concept has worked well for tertiary institutions and municipalities and many other industry sectors would be well advised to look in this direction too.