Doing well by doing good
In August, nearly 200 CEOs of large U.S. companies issued a statement redefining the purpose of business, reorienting from maximizing shareholder value to considering other stakeholders first.
The statement garnered lots of media attention focused on the boldness of the move and how it might impact publicly held companies. But for mutual companies like Grinnell Mutual, that kind of focus on the customer is old hat. It’s what President and CEO Jeff Menary likes to call the “secret sauce.”
Neil Alldredge, the senior vice president of Corporate Affairs of the National Association of Mutual Insurance Companies (NAMIC), says that this “new” trend is one the mutual industry has been well ahead of — by almost 250 years. “A lot of mutual companies would say this is sort of old news. But it’s reflective of a shift in our society that actually benefits mutual companies.”
WHY COMPANIES ARE GOING CUSTOMER FIRST
Across industries, customers are expecting corporations to deliver on the promise of a good experience backed by strong values.
In 2017, public relations firm Edelman found that 65 percent of consumers buy based on their beliefs, and 57 percent are buying (or boycotting) brands based on the brands’ position on political and/or social issues.
By 2020, customer experience will become the key brand differentiator, according to a study by Walker Information, a customer experience consulting company. For insurance companies, which may only interact with their customers once or twice during their contract — and usually during a claim — it’s important to get the interaction right, even if it means delivering bad news about non-covered losses. Seventeen percent of customers will walk away after one bad experience, even from a brand they love, and 59 percent will leave after several bad experiences, according to professional services network PricewaterhouseCoopers.
It’s this trend of active, engaged consumers that’s causing stock companies to try a different tack. And it’s this trend that Menary believes will contribute to a bright future for mutual companies.
“I think a lot of the younger customers are really asking questions. What do you give back to the community? Are you driven by profit or are you driven to serve and protect?” Menary said.
Alldredge says that people are attracted to companies that value their customers locally and directly, calling the mutual insurance model the “farm-to-table” of financial services. “Publicly traded companies have realized that, so they’re trying to figure out a way to position themselves to meet that rediscovered need.”
He notes that for mutuals, communicating their built-in values to customers is one of the best marketing tools they have.
“A lot of companies have a perception that this is hard stuff to communicate — that people only view transactions as about price,” said Alldredge. “But our research has shown that consumers understand it and respond positively to that message.”
THE MUTUAL FACTOR
Alldredge doesn’t believe it’s a coincidence that 60 percent of all mutual companies are more than 100 years old with a median age of 120 — an incredible statistic when only 1 percent of all businesses last for 100 years.
Menary says that not being beholden to shareholders gives the mutual industry a unique advantage. “Our heritage has always been people helping people, putting the policyholders first, and taking that attitude with everything we do.”
It’s that longevity, financial strength, and commitment that has mutual companies rating highly in industry benchmark reports and performance reviews. In NAMIC’s 2019 “The Mutual Factor” report, it found that under AM Best criteria, almost 85 percent of mutual companies are rated “A-” or higher, and 93 percent have a “positive” or “stable” outlook.
Mutual companies also tend to rate better than stock companies in several categories: 90 percent of mutuals have “strongest” or “very strong” balance sheet strength, compared to 78 percent of stock companies. And In 2018, the dividend ratio, a gauge of the proportion of premiums returned to policyholders, was 1.1 percent for mutuals, five times larger than for stock-based insurers.
Of course, the mutual model also has its drawbacks. For one, acquiring capital and growing quickly is much harder, since a mutual company cannot issue more stock. And mutual insurers typically operate with lower returns on surplus, according to NAMIC. But that’s because policyholders “benefit in other ways from their relationship with insurers, e.g. policyholder dividends and lower pricing,” according to NAMIC’s report.
BETTER TOGETHER
Beyond a push to provide excellent customer service, companies are increasingly investing in communities. Alldredge says for smaller mutual companies, giving back is simply a part of being woven into the fabric of their community. “Without their customers and their communities, there would be no reason for mutuals to exist,” he said.
Larger companies also know the value of being a part of the community they serve. In 2019, Grinnell Mutual employees volunteered over 2,600 hours during work hours; donated 275 units of blood; and gave away boxes of foods, gifts, and pet supplies to different charities, helping hundreds of families and many nonprofit organizations in the process.
In 2019 Grinnell Mutual shattered its monetary donation records, helping raise over $890,000 between employee contributions, company matches, and Grinnell Mutual Group (GMG) Foundation grants.
Giving back not only benefits communities, but employees, too. Professional services network Deloitte discovered in a 2017 survey that 77 percent of employees feel that company-sponsored volunteer activities are essential to employee well-being.
A robust volunteering program can also be a recruiting tool. In a 2015 report by the Millennial Impact Project, over half of millennials said they accepted a job based on the company’s philanthropic policies. At a time when only a quarter of U.S. companies offer paid volunteer time off (though that number is rapidly rising), having VTO is an excellent way to attract top talent.
STEPPING UP TO THE PLATE
While publicly held companies may have to implement VTO policies and rewire their operations to put their customers before their shareholders, taking care of people in their time of need is the DNA of insurance, especially mutual insurance, which was formed by communities for communities.
It’s been this way since Benjamin Franklin founded the American mutual system in 1752, long before the term “policyholder” even existed.
“In a difficult year, an insurer may spend 70 cents out of every dollar they bring in on claims and loss adjustment expenses,” Menary said. “When you think about that, there are some wonderful nonprofit organizations that aren't able to do that.
“We’re so fortunate to be working in an industry that actually helps put people’s lives back together.”
IN ACTION
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In the Community