By converting from mutuals to stock ownership, customer-owners were able to capture for themselves the capital and value that had been carefully built up by generations before them, paying themselves a hefty one-time dividend.
And executives lavished themselves with large grants of stock and stock options in the restructured demutualized businesses that would make them wealthier than they could have ever dreamt of in an enterprise run solely for the benefit of its customers.
Although the market share of mutuals, credit unions and cooperatives declined, it never disappeared. As stock companies took on ever more risk and leverage and got into an ever-wider array of products and services, the mutuals stuck to the basics. And when the crisis hit in 2008, the mutuals weathered it better and emerged stronger than ever.
Today, mutual banks and credit unions operate more efficiently than their stockholder-owned competitors. They have fewer loan losses and write-offs and have taken on less risk and less leverage. They charge lower fees for their services and lower interest rates for their loans. They loan more of their funds to households and small businesses. They have noticeably better service ratings from customers.
The comparative data on mutual insurance companies is less dramatic, if for no other reason than mutuals make up a bigger part of the insurance market and have come to operate in ways that are similar to stock companies. On average, mutuals have lower expense ratios and return more of each premium dollar to policyholders. They maintain more capital in reserve against losses and have slightly higher credit ratings. They take less risk on their investment portfolios, and as a result earn slightly less of a return. On ratings of overall financial strength, mutuals consistently win out.
The big difference comes in the area of customer service, where almost all of the top-rated insurers are mutuals. I know this firsthand, having bought my auto insurance from Amica, a mutual, for the past 35 years. The service at Amica is so good that it is almost a pleasure to be in fender bender, which is why the company routinely earns the top ranking in the JD Power survey. Its rates are highly competitive, and that’s even before getting the end-of-the-year dividend check, my small share of Amica’s profit.
Amica is the anti-Wall Street financial services company. Its business model is based on patient capital, prudent investment and a culture of loyalty and long-term relationships with customers and employees. When customers called Amica in the days after Hurricane Sandy, the average wait to talk to a human was nine seconds.