With the approval at the end of June for Huiyou Construction Mutual Insurance Society to open for business, China's first three pilot mutual insurance societies have officially debuted. Yet mutual insurance, still a novelty in China, has long been a mature model in the mature insurance markets of some countries.
How do mutual insurance organizations abroad operate? What experiences and lessons from their development are worth learning for domestic mutual insurance organizations? What kind of market structure will mutual insurance and joint-stock insurance companies form? With these questions in mind, a Yicai reporter conducted an exclusive interview with Jean-Louis Davet, CEO of MGEN, France's largest health mutual insurer.
A Huge Membership System
Mutual insurance refers to insurance activities in which organizations or individuals with homogeneous risk protection needs become members by entering into contracts and pay premiums to form a mutual aid fund, which assumes liability for losses caused by incidents specified in the contracts, or pays insurance benefits when the insured dies, is disabled, falls ill, or reaches an age or time limit agreed in the contract.
Mutual insurance is one of the main organizational forms of insurance internationally. It has a long history and still occupies an important position in the global insurance market.
According to Davet, mutual insurance accounted for 27% of the global insurance market in 2016. From the perspective of reserves, mutual insurers' own funds actually account for 33% of the entire global insurance industry.
Among the mature insurance markets abroad, France is one of the countries with the highest share of mutual insurance. "If all lines of insurance are included, mutual insurance accounts for 47% of the French insurance market. By comparison, the mutual insurance market share in the United States is 37%. In France's health insurance market, the share of mutual insurance even exceeds 55%," Davet said.
In terms of corporate form and system, the biggest difference between a mutual insurance society and a joint-stock insurance company is that the owners of a mutual insurance organization are its policyholders, which directly leads to differences between mutual insurance societies and joint-stock insurance companies in governance structure, sources of capital, surplus distribution and incentive mechanisms for management.
But compared with the relatively tight and clear management structure of joint-stock insurers, one of the "inherent disadvantages" of mutual insurance perceived by the market is how the numerous, dispersed policyholders of a mutual insurance organization can smoothly exercise ownership rights within such a loose structure so that the organization can operate smoothly.
Whether the "membership" system built by the insured is sound thus becomes the core of whether a mutual insurance organization's structure is solid. Davet said that within MGEN there are currently nearly 4 million member policyholders, of whom 7,000 are active members.
"Besides some traditional sales channels, we differ from joint-stock insurance companies in one respect in sales. Among our members there are some active members who join voluntarily. After certain training, they voluntarily do some mutual insurance promotion and sales work, and even participate in the operation and management of mutual insurance," Davet said. For example, MGEN has a product that partners with opticians to provide broken-glasses replacement services, and some active members regularly inspect the partner merchants, checking whether their services and prices meet the agreement requirements and reporting back to MGEN.
In a mutual insurance organization, the general meeting of members is the equivalent of a joint-stock insurance company's shareholders' meeting. "Mutual insurance is a model of member co-ownership and co-governance, but it is a form of indirect democracy. Through an indirect election mechanism we elect 500 member representatives to form the general meeting of members, which makes or adopts important decisions. Board members are then elected from among them; we currently have 54 directors," Davet said.
According to him, this entire structural system is actually similar across all mutual insurance organizations. But in different countries and regions, the degree of member participation varies. In France, for example, or in parts of Europe, South America and Africa, member participation is very high. In addition, member participation is related to the nature of the insurance and the line of business. "For lines related to social insurance, closely tied to people's future, health and personal protection, member participation is very high - health mutual insurance like MGEN, for example. By comparison, member participation in mutual insurers for auto, property and similar lines may not be as high."
Apart from the difference in the "membership" system, he believes that the management of mutual insurance organizations is not very different from the operating executives of joint-stock insurance companies, either in professional requirements or in the nature of their work.
However, in the relatively loosely structured mutual insurance organization, coordination between the chairman and the general manager, and supervision of the two, is particularly important.
"In a mutual insurance organization, there are two people who know everything that happens, understand all the information and know all the decisions. One is the chairman and the other is the general manager. These two people are crucial," Davet said.
According to him, problems have indeed occurred in this respect in the history of mutual insurance development abroad. For example, professional managers seized power directly over the board's head, or a chairman who was not a professional interfered in operations, causing the mutual insurance organization to be unable to continue operating normally. "The professional managers chosen by a mutual insurance organization must not only be professionals; good communication skills with directors and members are also very important. In addition, an audit committee or similar oversight mechanism can be formed by convening suitable members to track and supervise the organization's operations."
China Has Great Room to Develop Mutual Insurance
In August 2014, the State Council's "Several Opinions on Accelerating the Development of the Modern Insurance Service Industry" proposed "encouraging the development of various forms of mutual aid and cooperative insurance". In January 2015, the CIRC issued the "Interim Measures for the Regulation of Mutual Insurance Organizations", initially establishing the basic concepts and core principles for the development and regulation of mutual insurance. In April 2016, the State Council officially approved pilot mutual insurance societies and their industrial and commercial registration.
With this series of policy openings, in 2017 the first pilot mutual insurance societies - Zhonghui Property, Huiyou Construction and Xinmei Life - opened successively. Together with Sunshine Agricultural Mutual Insurance Company, established in 2005, these constitute all of China's currently licensed mutual insurance organizations.
"In insurance markets around the world, the lower the level of development of a market, the lower the market share of mutual insurance. This is because if the concept of 'insurance' has not yet been fully understood and accepted by people, the concept of mutual insurance is even harder to understand and accept. That is the situation in China, where insurance penetration is relatively shallow. But on the other hand, it also shows that insurance and mutual insurance still have enormous room for development in these markets," Davet said.
It is understood that MGEN came to China in 2010 to study the mutual insurance market. Davet said: "At that time, commercial supplementary medical insurance in China may have just begun, and the entire social security system was still being improved, so the conditions for developing supplementary mutual insurance were not yet ripe. But I think now is the time."
He believes that, first, China's medical industry is changing rapidly, including the entire health industry, and such change favors the development of new lines of insurance. Second, China is currently in a new era of rapid technological development, and the application of high technology and digital technology can bring innovative solutions to mutual insurance in governance and member participation.
As for the prospects of China's mutual insurance market, Davet believes that the development of mutual insurance can greatly help deepen insurance penetration, and that mutual insurance in China is bound to achieve rapid development in the field of health insurance. "Because health insurance has relatively low penetration in China, the market potential is great. Moreover, mutual insurance is especially suitable for health insurance; it is a format well suited to protecting people. Although China's social security system is gradually improving, supplementary insurance still has much room to improve and complement. On this point, historical experience shows that mutual insurance can also play a great role, including in health education, health risk protection and building networks of medical institutions."
A research report previously issued by CICC predicted that China's mutual insurance market has broad prospects, with the mutual insurance market share expected to reach 10% in 10 years and market space of about RMB 760 billion.
In fact, after the emergence of mutual insurance societies, the kind of market structure they will form with joint-stock insurance companies has also been one of the focuses of attention.
Davet said that, judging from foreign experience, although the share of mutual insurance in some countries is not low - and in some countries its share in lines such as health insurance even exceeds that of joint-stock insurers - the two are not substitutes for each other, but coexist in competition.
On the one hand, mutual insurance can prompt joint-stock insurers to pay more attention to long-term interests and reach broader groups, while at the same time exerting pressure on joint-stock insurers in pricing, potentially enabling more people to enjoy more cost-effective insurance. On the other hand, joint-stock insurance can drive mutual insurance to pay more attention to operating efficiency, with the two jointly pushing the insurance industry forward.
"From my observation of insurance markets, in some countries and regions where health insurance is better developed, the coexistence and balance of profit-making commercial insurance and non-profit mutual insurance is actually necessary. Their simultaneous existence can cover broader groups, and they also compete with each other. Under such circumstances, the sustainable development of the entire health insurance market is promoted. And it is often in such regions that people are healthier," Davet said.
It is worth noting that "mixed good and bad" is an unavoidable stage whether in France, where the mutual insurance market is relatively mature, or in China, where it is still in the pilot stage. The CIRC stated that some internet platforms have successively launched various forms of mutual aid plans, which to a certain extent have disrupted the normal order of the insurance market and harmed consumers' legitimate rights and interests. The CIRC will step up monitoring and screening of these platforms, and will resolutely crack down on and ban, in accordance with relevant laws and regulations, those that illegally engage in insurance business under the name of mutual aid plans.
Source: China Business News, 2017-08-15