Communicating the economic value of customer ownership in insurance: A qualitative analysis of annual reports

• Author: Iiro Jussila,Jari Stenvall,Harri Talonen,Antti Talonen
• Date: 01 September 2020
• DOI: http://doi.org/10.1111/rmir.12157
• Published date: 01 September 2020

Risk Manag Insur Rev. 2020;23:243–267. wileyonlinelibrary.com/journal/rmir

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243

Received: 2 November 2019

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Accepted: 13 August 2020

DOI: 10.1111/rmir.12157

PERSPECTIVE ARTICLE

Communicating the economic value of

customer ownership in insurance: A

qualitative analysis of annual reports

Antti Talonen

1

|Harri Talonen

2

|Jari Stenvall

2

|Iiro Jussila

3

1

Faculty of Law, University of Helsinki,

Helsinki, Finland

2

Faculty of Management and Business,

University of Tampere, Helsinki, Finland

3

Pellervo Economic Institute, Lappeenranta

University of Technology, Lappeenranta,

Finland

Correspondence

Antti Talonen, Faculty of Law, University

of Helsinki, PL 4, 00014 Helsinki, Finland.

Email: antti.talonen@helsinki.fi

Abstract

Its distinctive ownership base leads to a customer‐

owned mutual insurer representing a mission and

purpose of existence that are very different from

those of an investor‐owned insurer. While the owner

value of the latter can be defined in terms of return

on invested capital, in mutuals, the attention is

shifted toward benefits and value for customers.

Despite this major difference, scholars know little

about mutual insurers' value‐creating processes. To

begin filling this knowledge gap, the article explores

and identifies how managers of mutual insurance

companies understand and communicate the eco-

nomic value of ownership to their customer–owners

and other stakeholders. It reports on thematic ana-

lysis of annual reports of 18 mutuals, based in seven

countries (England, Finland, Ireland, The Nether-

lands, Sweden, Switzerland, and the United States),

on the basis of which the authors offer a tentative

framework for enhancing scholars' and practitioners'

understanding of how the economic value of own-

ership is understood in a customer‐owned mutual

insurance company.

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© 2020 The American Risk and Insurance Association

1|INTRODUCTION

Mutual insurance companies are insurers that are owned by their customers (e.g., Adams,

Andersson, Jia, & Lindmark, 2011; Armitage & Kirk, 1994; Lai, McNamara, & Yu, 2008) and actors

with important effects in the insurance industry globally. They account for approximately a third of

annual insurance premiums and hold some 9 trillion US dollars in assets; moreover, mutuals serve

922 million policyholder–owners and employ 1.16 million workers, worldwide (ICMIF, 2019).

Since the ownership in a mutual is formed through purchasing a policy or becoming insured,

mutuals do not have any customers in the typical sense (Viswanathan & Cummins, 2003). This

company form's distinctive ownership base entails a sharp difference from investor‐owned insurers

(IOIs) in terms of mission and purpose. While the value created for owners of IOIs can be defined

with regard to return on the capital invested, the focus within mutuals is centered on benefits and

valueforthecustomers(e.g.,Cabrales,Calvó‐Armengol, & Jackson, 2003). As such, mutuals' mission

and purpose can be defined as taking care of the customer–owners' interests in the insurance markets

as consumers (cf., Aase, 2007; Byrne, Heinonen, & Jussila, 2015; Cabrales et al., 2003;Talonen,2018).

Accordingly, the concept of customer value can be regarded as pivotal to understand the operations in

question. Such strategic‐level discussion offers merely a starting point, though—fairly little is known

about the customer–ownership‐related factors and processes. In other words, we know little of the

concrete value creating factors of customer ownership.

To begin filling this knowledge gap, we set out to explore and identify how managers of

mutual insurance companies understand and communicate the economic value of ownership to

their customer–owners and other stakeholders. This is in line with the notion that im-

plementation of certain ideas in organization depends on how managers and top executives

understand them (cf., Calof, Wright, & Qiu, 2008; Posner & Schmidt, 1987). Furthermore,

earlier literature recognizes that it can be challenging for customer–owners to understand the

value of being an owner if it is not clearly communicated by the company (e.g., Talonen, Jussila,

Saarijärvi, & Rintamäki, 2016). Accordingly, we begin increasing the knowledge on the ways

how customer ownership is harnessed in mutuals for facilitating customer value creation by

taking a managerial perspective. We present a thematic analysis of annual reports from 18

distinct mutuals, based in seven countries. In the course of this study, we utilized a schema

distinguishing between market‐control‐linked and voice‐dependent mechanisms as means by

which customer–owners can influence the value creation (e.g., Diacon & O'Sullivan, 1995;

Hansmann, 1996; Spear, 2004; Tuominen, Jussila, & Kojonen, 2009; Vierheller, 1994). Ac-

cordingly, our intention is not to develop or study these mechanisms as such, but to use them

for creating a structure for the analysis. The results of our analysis informed a tentative

framework through which scholars and practitioners alike can analytically consider how

ownership is seen (by managers) to create value for customers in a mutual company.

We start by presenting the theoretical backbone for the study—literature on customer value

and customer ownership. Then, we proceed to document the methodology and data used, along

with the research process itself. Section 4presents the final framework developed, from which

we offer conclusions for future research and managerial use.

2|THE VALUE POTENTIAL OF CUSTOMER OWNERSHIP

Customer value can be defined as the customer's perception of what he or she receives versus

what he or she gives up in transactions with the relevant company (e.g., J. B. Smith &

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