Mutuals increase IT and digital spending in response to COVID: AM Best

Mutual insurers have responded to COVID-19 by accelerating their investments in IT and digital, according to  AM Best, the rating agency, which is likely to lead to better pricing and reduced costs over time.

The mutual sector has demonstrated the sustainability of its business model in recent months, AM Best said in a market segment report, titled Mutuals Embrace Innovation to Cement Their European Insurance Market Role.

Larger mutuals in particular have enhanced their competitive positions in recent months by investing in their businesses and using a wide variety of structures to increase their scale, AM Best said. Larger mutuals tend to score better than their smaller counterparts in AM Best’s innovation score, it noted, and have made the largest investments in technology and innovation.

The rating agency highlighted the importance of customer centricity to the mutual model, emphasising their focus on maintaining strong access to their customers and delivering a high quality of service. As mutuals operate for the benefit of their members they can have relatively marginal profitability, AM Best admitted, typically reporting higher combined ratios.

However, many mutuals have looked for new ways to drive growth in recent years, either via acquisitions, or by using legal structures to group together and pool resources, creating economies of scale, AM Best said.

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