As a BCICS Co-op student researching the role of mutuals in the Canadian Social Economy the reoccurring questions plague me: what are mutuals and, more importantly, why should one seek to explore and preserve them?

In essence, a mutual is a voluntary group of individuals who derive joint benefit from sharing risk. The ‘farm mutuals’ peppering Canada’s countryside for over 100 years are perhaps the most salient example. The Red River Valley Mutual Insurance Company, formed in 1875 by Mennonite farmers, was one of the first farm mutuals and was designed to mitigate the risks of fire damage. This mutual provided an alternative to the stock insurance companies that would charge high premiums and were controlled solely by shareholders with sufficient capital to invest in them. Like other mutuals, the Red River Valley Mutual Insurance Company proved to be a successful alternative. Today it has over 44,000 policyholders and a premium revenue that exceeds $23 million.

It is difficult to discern a universal set of principles that guide mutuals; however, most subscribe to the spirit of self-help, co-operation and are strictly run as non-profit organizations. Many mutuals also claim to be democratically governed, although in practice some mutual structures do not entirely nourish this value. For example, those mutuals where a small group of policyholders are voting members (“small percentage voting mutuals”) are significantly less democratic than those where all policyholders are voting members (“large percentage voting mutuals”). Based on these definitions the question then arises: how do mutuals differ from co-operatives?

There are a number of aspects that differentiate mutuals from co-operatives. To begin, mutuals primarily provide a non-tangible service: the mutualization, or sharing, of risk. In other words, mutuals are involved in the insurance business whereas Co-operatives may provide a plethora of other material services. The structure of the mutual reflects its purpose. Considering that mutuals are dedicated to providing a service that is inexorably tied up with security, it is perhaps unsurprising that they are run as non-profit organizations. All capital is re-invested back into the mutual to provide more effective security to its members. Another differentiating feature is that mutuals do not offer share capital, meaning that members do not possess legal rights to distributions of profits. Membership contributions are made in exchange solely for services – not financial or legal ownership. Thus members are policyholders, not stakeholders. The absence of share capital is essential for the maintenance of mutuals as it renders the companies’ capital an indivisible fund. Members cannot ‘buy out’ their share and as a result the mutual cannot easily be dissolved.

Increasingly however, many argue that the absence of share-capital and the presence of a non-profit philosophy are negative features. In fact, an entire term has been created in honour of this argument, that term is demutualization. Demutualization is a process whereby a mutual sells ownership to those who buy shares. When a company demutualizes it may quickly raise money through the shares it sells. By demutualizing, the company is no longer run by policyholders, but shareholders whose primary concern is the growth of profit. Those supporting demutualization feel that this process is essential for the growth of capital necessary for companies to effectively compete in various world markets.

Yet for others, such as Jonathon Michie, author of New Mutualism A Golden Goal, the feeling is not shared. Michie argues that, “The temptation to demutualize is due to the fact that one cannot have one’s cake and eat it.” The impetus guiding demutualization is driven by the short-term desire to consume the mutual cake and make a profit; however, once the mutual has been digested so too are its benefits for future generations. As such, demutualization may be understood as a gluttonous process informed by short-term gain, or as Michie puts it: demutualization is an “orgy of cake eating.”

On March 12, 1999, the Canadian Department of Finance elicited an “orgy of cake-eating” through its enactment of Bill C-59. This Bill enabled large mutual life insurance companies to demutualize (or issue shares to the public). Following this Bill, four of Canada’s largest mutual insurance companies did just that - and so the feast began. However, while those policyholders involved in the conversion were left satisfied with stuffed stomachs, either in the form of shares or cold cash, those of previous generations who founded the mutual were left without a voice and without a slice of the mutual cake. Due to Bill C-59 the only mutuals still in existence are property and casualty (P&C) mutuals. To protect these P&C companies the Canadian Insurance Act currently forbids demutualization. Yet it is not inconceivable for new legislation to incite another wave of demutualization that may wash away P&C mutuals into a frenzied sea of cake-eating.

What then is needed to avoid this wave of demutualization from destroying mutuals in the future? First, it is necessary to understand exactly why mutuals are important. The term “mutual” is elusive. Too few, for example, recognize that mutuals avidly seek to provide affordable services for its own members, which in turn keeps the price of competing shareholder-owned companies in check. Additionally, mutuals appear to lack a clear set of ideals and as a result they are often absent from discussions devoted to the very practices that they themselves uphold. For example, mutuals are frequently eclipsed from the discourse of the Social Economy thereby inhibiting the mutual movement from actually moving forward.

A conceptualizing process is therefore necessary to situate mutuals in the theoretical and practical framework of the Canadian Social Economy. Through this process mutuals may be understood within a larger horizon of significance, rather than being reduced to an amorphous term whose effects are not easily comprehended. Recognizing the role of mutuals in the Canadian Social Economy is not solely for the sake of researchers and practitioners already active in the field; instead, everyone should understand the term “mutual.” For, if mutuals are not widely understood today the mutual cake may be consumed at the peril of those requiring its benefits tomorrow. (For more information about mutuals in Canada consult the Canadian Association of Mutual Insurance Companies’ website: www.camic.ca)