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MUTUAL ORGANIZATIONS, MUTUAL SOCIETIES
Edith Archambault
To cite this version:
Edith Archambault. MUTUAL ORGANIZATIONS, MUTUAL SOCIETIES. Regina A. List, Helmut
K. Anheier and Stefan Toepler. International Encyclopedia of Civil Society, 2nd edition, Springer,
inPress. �halshs-02990281�
1
MUTUAL ORGANIZATIONS, MUTUAL SOCIETIES
By Edith Archambault,
Centre d’économie de la Sorbonne
Université Paris1 Panthéon-Sorbonne
SYNONYM
Mutuals
KEY WORDS
Mutual Benefit Societies
Mutual Insurance Companies
Social economy
Demutualization
Welfare state
Democratic governance
Solidarity between members
Limited profit sharing
DEFINITION
According to a very large definition of the European Commission (mutual
organizations/societies “are voluntary groups of persons (natural or legal) whose purpose is
primarily to meet the needs of their members rather than achieve a return on investment”.
This large definition includes self-help groups, friendly societies, cooperatives, mutual
insurance companies, mutual benefit societies, credit unions, building societies, savings and
loans associations, micro-credit, burial associations, Freemasons… (European Commission,
20 Hereafter, it is a more restricted definition that is used, relying on principles shared by
most mutuals in Europe, the region where they are the most widespread. However some
international examples put European mutual societies in perspective.
The core organizations examined here will be mutual insurance companies and mutual benefit
societies. In that sense mutual societies are insurance companies run by their members for
protecting them against property, personal and social risks on a voluntary and non-
compulsory basis. Mutual insurance companies deal with property and life risks while mutual
benefit societies protect their members against social risks: illness, disability and old age
mainly.
INTRODUCTION
Mutual organizations or mutual societies, often designated as mutuals, exist everywhere in the
world, in developing as well as in industrialized countries, on a more or less institutionalized
form. In a developing country, some mutual organizations appear as voluntary associations
for gathering and pooling money to fund marriages, funerals or a business start-up for one or
several members (tontines or roscas). Other mutuals pool voluntary work to afford water
supplies or build roads in rural areas (development self-help associations). mutual aid is a
voluntary reciprocal exchange of resources and services for mutual benefit. Mutual aid, as
opposed to charity, does not connote moral superiority of the giver over the receiver.
In a developed country mutual societies are more and more businesses; they operate in the
same markets as corporations and compete with them. They are formed on a voluntary basis
2
to provide aid, benefits, insurance, credit or other services either to their members or to a
larger population. In many countries mutual organizations have a very remote historical
background as said hereafter.
As operating on the same markets as corporations, mutual societies are facing a global
competition challenging their historical values. As forerunners or complements to the social
security schemes, they have to find innovating responses to new social needs and to the crisis
of the welfare state. These key issues and new challenges are at the roots of the dynamics of
mutual organizations
If mutual societies are insurance companies run by their members for protecting them against
property, personal and social risks, this definition has to be specified by a set of principles
shared by the bulk of mutual organizations and inherited of historical experience. The major
part of these principles is also adopted by other social economy organizations:
Absence of shares: mutuals are a grouping of persons (physical or legal), the
members, and not a pooling of funds as in the case of corporations. Unlike
cooperatives, whose capital is represented by shares, the funds of mutuals are owned
and managed jointly and indivisibly. A mutual has no external shareholders to pay by
dividends, and does not usually seek to maximize profits. Mutual organizations exist
for the members to benefit from the services they provide; their main resource are the
fees or premiums paid by their members/owners
Free membership that means free entry and free exit for everyone who fulfills the
conditions laid down in the by-laws and abides by mutualism principles. According to
these conditions the mutual can be “open” to the population at large, such as health
mutuals in Belgium or “closed”, reserved to a geographical area, an industry or an
occupation. In the case of compulsory insurance, health insurance or car insurance for
example, the choice of the insurer has to be free.
Solidarity among members, a historical principle rooted in the 19
th
century worker’s
movement and the ideology of the solidarism current. To day, that means a joint
liability, a cross subsidization between good risks and bad risks in mutual benefit
society. and no discrimination among members according to their age or risk .
Democratic governance, conveyed by the principle “one person, one vote” in
opposition with the rule “one share, one vote” which is symbolic of corporate
governance. Board’s members are volunteers, in opposition with the practice of
director fees in corporations.
Independence: mutuals are private and independent organizations, neither controlled
by government representatives nor funded by public subsidies. In the absence of
shares, a mutual cannot be subject to a takeover bid by a standard business.
Limited profit sharing: the profit of a mutual can be partly shared among the owners/
members, usually as discounted premiums or rebates. The main part of the profit is
reinvested in order to improve the services proposed to members, to finance the
development of the business or to increase their own funds. Profit sharing has to be
limited because it is not the aim of the organization. The organization purpose is to
meet the interests of its members and sometimes of the community at large and also
to empower the members. The fact that profit sharing is authorized in mutual societies
prevents most of them to be included in the nonprofit sector, strictly non profit
distributing (Salamon and Anheier, 1997). However they belong to the larger social
economy (UN, 2018)
3
These principles often referred to as mutualism values are inherited of a deeply rooted
historical background.
HISTORICAL BACKGROUND
Mutual benefit societies date back to the most ancient times while mutual insurance
companies are more recent. Some precursory mutual organizations could be found in Ancient
Egypt (mutual assistance among stone cutters) or in the Roman Empire (the same among
bricklayers). However mutual benefit societies are mainly descendants of the oldest part of the
European non-profit sector: they appeared in the Middle Ages as charitable brotherhoods
(continental Europe) or friendly societies (United Kingdom). Brotherhoods were fraternal
societies in urban areas linked to the guilds and therefore reserved to the same craft, business
or trade, they helped the needy members of the guild in the case of illness of their families or
the widow and the orphan in the case of death of the breadwinner. Friendly societies fulfilled
the same purposes but they were independent of the guilds and therefore more open than
brotherhoods. The corporatist system, on which the guilds and brotherhoods relied, became
weaker but survived with the rise of the free market and modern industry in most European
countries. In France, the 1789 Revolution suppressed both guilds and their social subsidiaries,
the brotherhoods (Archambault 1996; Dreyfus,1993).
Nevertheless mutual benefit societies flourished during the 19th Century in Europe, when
industrial revolution and rural depopulation pauperized the working class and broke the
traditional solidarity of the family or the village. They were inspired by ideological currents
such as utopist socialism (Owen, Proudhon), the Fabian movement or solidarism (Bourgeois,
Durkheim). Some of these mutuals were linked with the emerging labor-unions and other
were more middle-class oriented. Depending on the countries, the period and the degree of
recognition of the labor movement, they were either repressed or encouraged by the state.
(Toucas-Truyen, 1998)
Whatever their form, mutual benefit societies were the forerunner of the welfare states.
Mutual societies detected first the main social risks, sickness, disability and old age, that were
covered later by a public social insurance scheme in Continental European countries and by a
National Health service and pension funds in Anglo-saxon and Nordic countries. During the
20
th
century, modern welfare states challenged mutual benefit societies, forced to become
either complements or agents of the compulsory social security schemes. However most of
them keep their vanguard function (Esping-Andersen, 1999).
The forerunners of mutual insurance companies are more recent. They can be found in the
second part of 19
th
century when the progress of probabilistic mathematics transformed
insurance in a modern industry. Farmers pooled their savings to protect themselves against the
risks of their property, bad weather and fires mainly, on a mutual basis. Other mutual
insurance companies for retailers and craftsmen followed, in competition with insurance
corporations, but the dissemination of mutual insurance among the salaried population is more
recent; it was in many countries a by-product of the post WWII consumption society,
especially with the compulsory insurance of car accidents and other damage to real estate
property (Toucas-Truyen, 1998).
4
The second part of 19
th
century and the beginning of 20
th
century is also the time when mutual
forms of banking appeared in Europe either as mutual societies or cooperatives to pool the
savings and afford credit to the part of the population who had no access to commercial banks
because of their lack of guarantee. The Raiffeisen banks in Germany are the most
emblematical, the savings and loans associations or the savings banks the most widespread.
KEY ISSUES
Competition
Mutual insurance companies compete with investor-driven businesses. In this competition
they have advantages and disadvantages. Some features can be put on the asset side:
The mutuals rely on trust, a winning card in an industry with high information
asymmetry as Hansmann shows it: the insurer knows more than the client on the
probability of the risk but the client knows more on the quality of the car or dwelling
insured. Trust in mutual insurance companies is manifested by a lower discrimination
among members than in the competing businesses and by the education of their
members to prevent the risks and not to cheat in their accident claims.
They have a better quality/price ratio than their competitors due to their nearly
nonprofit status, to their policy of rebates, to the fact that they have no or few brokers
and also to the homogeneity of their members in the case of professional mutuals
They have a high financial solidity, because their investments are less risky and more
often ethical than those of their competitors and also because they are not subject to
take-over bids. In the periods of stock exchange crisis, they act as stabilizing agents
and shock absorbers. This financial stability incite mutual insurance companies to
have long term objectives (Boned,2008)
But the shortcomings of the mutual status exist also:
The mutual insurance companies have a limited access to external capital from the
financial markets while the restricted voting rights may also discourage external
investors. This limited access to capital markets is an obstacle to life insurance, an
activity that cannot be run with a pay as you go system as the property insurance. In
the latter the premiums are devoted to the members who had a loss on an annual basis
The size of some of the large mutual insurance societies is likely to distance
members from the decision-making centre. In the smaller ones, the application of
democratic governance may lead to delays in the decision-making process. Recently,
the application to mutual insurance companies of the European directives on insurance
incited them to merge to attain a critical size on the insurance market.
These disadvantages facing competition lead recently many Anglo-Saxon countries to a
demutualization trend
Demutualization
In the United Kingdom, the demutualization of the Building Societies was the beginning of a
wave of demutualization as part of the Thatcher’s government deregulation trend. The
building societies first arose in the 19th century from working men's mutual savings groups:
by pooling their savings, members could buy or build their own homes. With the development
of financial services, building societies offered mortgage loans as standard banks. In order to
diversify their services to keep up with banks and other financial institutions in the
commercial world the old societies needed to expand. To do that, they have to raise capital, a
difficult operation with a mutual form because they have no access to equity markets. In
5
1986, the building societies became joint stock societies, the British form of corporations, and
therefore they floated on the stock exchange. The capital and reserve funds were distributed
among members who became shareholders. Of course sharing the collective property of these
mutual organizations accumulated by many generations was a windfall gain for the present
members who received each about $1000. But the rising of costs and prices which followed
the demutualization was an unexpected consequence for consumers and the bankrupt of
Northern Rock, a former building society, during the subprime crisis was also a disillusion.
Despite the demutualisation, there are still more than 10,000 mutual societies in the UK today.
A major demutualization wave took place in the USA in the 1980s and again in the late 1990s
according to the same line and a smaller one in Australia. This demutualization trend affected
savings and loans association in the USA and building societies in Australia. Demutualization
was less pronounced in continental Europe and it is forbidden by law in some countries such
as France, Luxemburg or Ireland. In those countries who insist on the intergenerational nature
of solidarity, the registered capital and the reserve funds cannot be shared among the
members/owners if the organization disappears. In this case, the property of the organization
has to be transferred to another mutual or social economy organization or to the state.
Mutual benefit societies in changing welfare states
Mutual benefit societies compete with health complementary insurance provided by standard
insurance companies. In this competition to money transfers or reimbursements, they keep or
extend their market shares in most countries as they have a better quality/cost ratio. Health
mutuals rely on principles which are different of commercial insurance companies: fees are
often paid according to the member's income and not according to its personal risk or its age.
Bad risks are never rejected, there is no rate and benefit discrimination among members and
therefore a cross-subsidization between bad and good risks and rich and poor occurs
However mutual benefit societies are much more challenged by the retrenchment or change
of the public welfare states when the demand for social services increases. Two long-term
trends, the ageing of the population and the reduction of care self-service inside households
due to the growth of female employment, rise the demand of day care, homecare and nursing
homes. Facing what Esping-Andersen called the “family failure” of care services, during the
last decades, mutual benefit societies in some European countries provided social services or
facilities to the children, the disabled and the frail elderly, with high quality standards. In the
social homecare service provision, they compete with standard businesses and also with
nonprofit organizations. These personal services are financed partly by the household itself,
partly by the central and local governments or social security, partly by the employers.
Nordic and Anglo-saxon countries are the forerunners in this new welfare mix spreading
rapidly elsewhere.
INTERNATIONAL PERSPECTIVES
Europe
Rooted in this long and diverse historical background, the European mutual organizations/
societies are to-day important providers of insurance and health services. Mutual insurance
companies hold a very significant share of the insurance market: 50% of car and real estate
insurance in France, 22% of the whole insurance industry in Germany but they are rare in
Italy or Greece. Their market share in life insurance and pension funds is smaller but it is
growing. Recently some cooperative banks began to deliver insurance products as well and it
is why recent statistics include them with mutuals (Table1)
6
Table 1 Mutual and cooperative insurance sector in Europe and EU, 2016
Europe (36 countries)
EU (28 memberstates)
Premium income (€ billion)
429
410
Insurance market share
31.5%
32.6%
Total Assets (€ billion)
3.020
-
People employed
461.000
439.000
Members/policy holders
425.000.000
417.000.000
AMICE, 2020
France (EUR 878 billion) and Germany (EUR 718 billion) are the largest markets in terms of
assets held by mutual insurers, but smaller countries have also large assets in 2016, especially
Denmark (EUR 258 billion) and Sweden (EUR 238 billion)
There are mutual benefit societies in every European country and all of them provide health
insurance and other services. They are for historical reasons tightly linked to the social
security schemes but their role differ according to the form of the health protection: social
insurance, funded by employers and employees contributions, in most continental and oriental
countries (Bismarckian scheme) or National Health services financed by tax in Anglo-saxon,
Nordic and some Mediterranean countries (Beveridgian scheme) (Esping-Andersen, 1999)..
According to these various social protection schemes, mutual benefit societies either run the
compulsory health insurance (Germany, Belgium, Netherlands, Czech Republic, Slovaquia)
or provide a complementary sickness or old age insurance (France, Switzerland, Luxemburg
Spain, Portugal) or alternatives to the National Health System, such as quicker health care or
higher pensions (UK and Nordic countries). Mutual benefit societies cover a larger part of the
population in the Bismarckian than in the Beveridgian countries, as showed in Table2.
Table 2. Distribution of the population covered by a mutual benefit society in Europe
Less than 20% of
total population
20% to 4O% of
total population
60% to 80% of
total population
Italy
Greece
Spain
United Kingdom
Portugal
Hungary
Denmark
Sweden
Finland
France
Czech Republic
Luxemburg
Source: AIM, 2008
However in Europe, mutual organizations do not extend to other industries than their
historical ones: property, personal and social insurance or credit. That is why they are the
smaller part of social economy organizations. Table 3 gives an order of magnitude of the
respective part of cooperatives, mutuals and nonprofit organizations in social economy. Even
if these data are not strictly comparable because they are not based on a common
methodology, employment in mutual organizations is only 3.0 per cent of the total
employment in social economy organizations, compared to 30,8 per cent in cooperatives and
66.2 per cent in nonprofit organizations.
7
Table 3 Employment in mutual societies and other social economy organisations, EU 28
Country
Associations and
Foundations
Total
Social economy
Austria
236,000
308,050
Belgium
362,806
403,921
Bulgaria
27,040
82,050
Croatia
10,981
15,848
Cyprus
3,906
6,984
Czech Républic
107,243
162,921
Denmark
105,081
158,961
Estonia
28,000
38,036
Finland
82,000
38,036
France
1,927,557
2,372,812
Germany
1,673,861
2,635,980
Greece
101,000
117,516
Hungary
142,117
234,747
Ireland
54,757
95,147
Italy
635,611
1,923,745
Latvia
18,528
19,341
Lithuania
n.a
7,332
Luxemburg
21,998
25,345
Malta
1,427
2,404
Netherlands
669,121
798,778
Poland
128,000
365,000
Portugal
186,751
215,963
Romania
99,774
136,385
Slovakia
25,000
51,611
Slovénia
7,332
10,710
Spain
828,041
1,358,401
Sweden
124,408
195,832
United Kingdom
1,406,000
1,694,710
TOTAL EU-28
9,015,740
13,621,535
Chaves and Monzon (2019)
Belgium, Croatia, Czech Republic, Finland, France, Germany, Slovakia , Sweden and UK are
over this 3.0 per cent average, mainly corporatist and post-communist countries.
Other international perspectives
In the United States many insurance companies were initially mutual insurance; more some
corporations mutualized, their ownership passing to their policy holders. But as said further,
the reverse trend of demutualization occurred in the 1980s. Nowadays, even if their name
includes the term mutual, all insurance companies are joint stock owned. Many savings and
loan associations were also mutual companies, owned by their depositors, but most of them
are now under stock ownership. In the same way, some health insurance companies, formerly
created as nonprofit organizations, such as Blue Cross and Blue Shield, became under the
pressure of competition more standard businesses.
Nowadays, in many developing countries where public social insurance does not exist or is at
the very beginning, mutual organizations play the same role than the mutual benefit societies
in the European countries in 19
th
century, especially in Latin America, Asia or Africa. As in
Europe formerly, these mutuals are created by and for the most organized and educated part
8
of the population. The risks covered are illness, death and accident and also mutual help in
case of social events such as marriages and funerals, proportionally much more expensive
than in developed countries. Most of these mutual organizations were created during the last
three decades and they are a source of empowerment for the population. For example the
Fandene mutuals in Senegal are controlled by elected countrymen of the same village; in
Bolivia, Projecto de Salud provides free health care in exchange of volunteer work to build
the health facilities; in Philippines, Mother and Child Care relies on members fees but acts
also as a lobby to obtain low prices from the multinational drugs companies. When public
health insurance or health service is created, mutual organizations shift to other risks such as
old age. Mutual organizations such as the tontines are also widespread in developing
countries. Tontines pool the savings among a small group of members or a village; a random
winner every year takes all the money to realize a small business; the tontine’s life ends when
every member has got once the pooled savings. These financial mutuals look like the building
societies of the earliest times (Defourny et alii, 1999)
FUTURE DIRECTIONS
European mutual societies at the cross-road
Mutual societies are driven by two logics, insurance and solidarity, the former dominates in
insurance mutual companies and the later in mutual benefit societies. This frail equilibrium is
nowadays challenged by the European Commission ambiguous guidelines. In one hand the
European Commission acknowledges the public benefit role of mutual societies and other
social economy organizations. In the other hand, the insurance directives and the Solvency 2
guidelines consider them as insurance corporations and incite them to a kind of
standardization.
Another challenge is due to the merging trend in mutuals, partly a consequence of European
guidelines and implementation of Solvency 2 in 2016. In France for instance, mutuals were
5,800 in 1990 and only 400 in 2018. This horizontal integration increases the size of mutual
societies with the result of more difficult democratic governance with elected representatives
of the owners/members and less direct relationship with the members and the territory. The
difference made by mutuals has been reduced by the competition with standard businesses
that skim their good risks and.use personal big data to discriminate their policy holders. Many
mutuals created also corporate subsidiaries, another way of trivialization or institutional
isomorphism (Boned, 2008).
Mutual societies are fitted with post-industrial societies
Mutual societies are prototypes of social enterprises, an emerging form of enterprise. In post-
industrial societies personal services are difficult to standardize and offer a wide range of
quality and asymmetric information. These personal services are able to be provided by
mutual benefit societirs as well as nonprofit organizations with a better quality per cost ratio
than their shareholder driven counterparts. They can help to give an equitable access to health
care and an solidarity based health coverage Mutual insurance companies have a long-term
orientation that provides stability to the financial sector.
A democratic management fits the well educated youth who dislikes the authoritarianism of
standard firms and advocates the social responsibility of enterprise. A mutual form fits also
high technology services at least at their very beginning, when partners are supposed equal:
the wiki movement for example shows it. A mutual could also run pension funds and
retirement savings with a better financial solidity and a more ethical choice of investments
9
than for-profit pension funds. So in the future, pre-industrial forms of mutual organizations in
developing countries could coexist with post-industrial forms, well adapted to the knowledge
economy. In addition, the large assets of mutual insurance societies could be used partly to
invest in ecological transition.while banking and insurance industries are getting closer.
Mutuals are no doubt important partners to build a more inclusive economy (Noya, 2007)
CROSS REFERENCES
Cooperatives
Cross-subsidization
Empowerment
Information asymmetry
Solidarity
Social economy
Volunteer management
Durkheim
Hansmann
Proudhon
REFERENCES
Archambault E (1997). The Nonprofit sector in France. Manchester, Manchester University
Press
AIM (International Association of Mutual Benefit Societies)
http://www.aim-mutual.org,, consulted on 15/03/2008 and on 15/01/2020
AMICE (Association of the mutual and cooperative insurance sector in Europe)
https://www.amice-eu.org/?lang=fr, consulted on 13/01/2020
Boned O., (2008) « Les mutuelles en Europe. Le défi de l’identité, Vie Sociale, 2008/4, 131-
148
Chaves R. and Monzon Campos J-L (2019), Evolution récente de l’économie sociale en
Europe, CIRIEC , Working paper 2019/01
Defourny J., Develtere P. and Fonteneau B. (1999), L’économie sociale au Nord et au Sud,
Brussels, De Boeck
Dreyfus M. (1993), “The labour movement and mutual benefit societies. Towards an
international approach”. International Social Security Review. 46:3, 19-27
European Commission, Enterprise Directorate General (2003), Mutual Societies in an
Enlarged Europe, Consultation Document, 03/10/2003
Esping-Andersen G.(1999), Welfare states in Transition: National Adaptations in Global
Economies, London: Sage publications.
10
Noya A. and Clarence E. (2007), The social economy. Building inclusive economies, Paris:
OECD publishing
Salamon L. and Anheier H. (1997), Defining the Nonprofit Sector: A Cross-national Analysis,
Manchester: Manchester University Press
Toucas-Truyen P.(1995) Histoire de la mutualité et des assurances. L’actualité d’un choix,
Paris, Syros.
United Nations , Department of Economic and Social Affairs, Statistics Division (2018)
Satellite Account on Non-profit and Related Institutions and Volunteer Work
FURTHER VIEWING: https://www.youtube.com/watch?v=UZcdtHjhSJs
3,802 words + 210 definition + 217 References