Cartoon 926: Riddle

The current generations do not remember when most insurance companies used a different business model. They were ‘mutual’ companies. The policy holders owned the business and not outside investors through stock. The big different is that a mutual company’s focus is on the customers well being and not the sole driver of outside investors of ‘return-on-investment’. The policy holders got a much better deal and lower costs with this model. Some insurance companies had ‘mutual’ in their name, such as Mutual of Omaha.

In the 1980s insurance companies in mass begin switching to the stock model. Benefits went down, costs and exclusions went up. John Hancock switched a decade or so ago.

This type of collective business model was wide spread in America. In farming communities there were coops, such as those for electricity and other municipal services. The owners were the tax payers of the municipalities and not outside investors with a stock model. What is not said out loud is that it is ‘socialism’.

Federal Credit Unions use a mutual business model. But some Federal Credit Unions are merging with traditional banks. This is stealth changing ownership and bringing in the investor business model. It dilutes the customer advantages of the mutual model.

There was a very famous case a decade ago that was in the news. A municipality owned a hydroelectric dam. Their rates for electricity was very low and stable. The management got the idea to turn the ownership into a stock company. Outside investors rushed in and the rates for electricity increased several hundred times.

Hurricane Harvey has invaded. The thing you will keep hearing is how the claims will affect return-on-investment for the stock holders investors. It will not be how to broaden claim coverage. It is all about who gets paid with the business model.