What is next for the insurance sector: the rise of the mutuals

TheGovernment’s 2024 financial plan[1]identified “unlocking the full potential of the mutuals sector” as the first of six key priorities and outlined ambitions to double the size of the sector and reduce the barriers faced in scaling. This political intent builds on a decade of steady growth, with mutual insurers achieving a compound annual growth rate of 3.7% from 2012-2022 [2].

Despite this, mutuals remain a relatively small part of the UK insurance market, accounting for an 8% share in 2022 [3]. Their growth has been constrained by limited access to capital, operational inefficiencies and regulatory complexity. The current environment presents an opportunity for change, and for mutuals to reposition themselves as a core component of a consumer-focused insurance market.

Consumer Trust and Affordability Pressure

According to Life Insurance International [4], trust in financial institutions continues to be a barrier to increasing insurance uptake among Millennials and Gen Z. The values inherent in mutual organisations, such as community focus and the absence of shareholders resonate more strongly with younger consumers.

Affordability is a major concern; one in five adults have reduced or cancelled insurance due to financial pressures or unaffordable premiums [5]. Mutuals, with their member-first ethos and lack of shareholder profit demands, are well positioned to respond. By reinvesting surplus funds into pricing, product innovation, and service improvements, they can help close affordability gaps while fostering long-term trust.

Research also shows [6] that younger consumers are willing to pay a premium for ethical products, especially those aligned with sustainability values. This presents a strategic opportunity for mutuals to occupy a unique space in the market, by combining affordability with a strong ethical proposition.

What can life insurers do to prepare?

Mutuals offer a fundamentally different approach to value creation. Their long-term orientation supports sustainable decision making, which is particularly important to life insurers.

Growth will depend on four key areas:

1. Regulatory reform
   The Labour government has pledged to reduce barriers for mutuals, a commitment which is reinforced by the Law Commission’s review of the Friendly Societies Acts. This review aims to modernise outdated legislation, with proposed reforms including clearer governance rules, greater flexibility in business activities, and improved access to capital. These changes are key enablers for mutuals to scale. Regulatory clarity will be essential to allow mutuals to scale without compromising their core principles.
2. Capital and risk management
   As mutuals pursue growth, the strength of their balance sheets will face greater scrutiny. Sustainable capital allocation and effective risk management frameworks will be critical to maintaining financial resilience and regulatory confidence.
3. Strategic and operational transformation
   To remain competitive, mutuals must modernise. Investment in digital infrastructure, AI, automation and data analytics can improve efficiency and customer experience. Strategic partnerships (including with other mutuals) may offer a route to scale without diluting mutual value.
4. Marketing and Customer Communication
   Mutuals are often misunderstood or overlooked by consumers, limiting their ability to compete. To grow market share, mutuals must clearly communicate their member-first model and the benefits it offers – emphasising trust and affordability. Strategic marketing will be key to raising awareness, building brand recognition, and connecting with ethically minded consumers.

The mutual model is not new, but its relevance is resurging

With the right regulatory support and strategic focus, mutuals have the potential to play a much larger role in the UK life insurance market. Their values-driven approach, long-term mindset and emphasis on member outcomes align well with the challenges and opportunities facing the sector today.

Insurers, regulators, and policymakers will need to work together to ensure the mutual sector can scale sustainably. If successful, mutuals could help reshape the life insurance landscape by offering a compelling alternative that balances commercial viability with social value.

Sources 

[1] Labour Party’s plan for Financial Services, Financing Growth.

[2] Association of financial mutuals and International Cooperative and Mutual Insurance Federation, UK Market insights 2023.

[3] Association of financial mutuals and International Cooperative and Mutual Insurance Federation, UK Market insights 2023.

[4] Life Insurance International, Rebuilding trust and simplifying insurance will win over the next generation.

[5] FCA, Financial Lives cost of living (Jan 2024) recontact survey. 

[6] Forbes, Gen Z Is Emerging As The Sustainability Generation.