INSIGHT October 07, 2020

Profits for Members, not shareholders

Readers of my previous articles will have noticed a common theme being discussed. The topic I have taken up is that the dominant life insurer model in Australia has been shareholder driven with a focus on short-term market growth. This is because most life insurers are listed companies, who distribute profits to their shareholders.

After making our fourth annual distribution of profits back to insured Members, this article seeks to explore this unique feature and other benefits that derive from our alternative model- the mutual model.

PPS Mutual is the only life insurance provider in Australia who currently offer life insurance products with a Profit Share. As a mutual, we do not have shareholders, we are owned by the lives insured under our products. This means we’re free to share profits back to the Members who buy our insurance policies.

We do this without return on equity pressure, no shareholder dividends to pay nor short-term sales targets to meet for the next quarterly return. Nor are we hampered by needing to uphold a subsidised advice model. Our goal is to simply provide appropriate products, services and support whilst delivering on claims payments and long-term profitability that aligns with the very best interest of one master – the Member.

A proven sustainable business model

Consumer or Member alignment is a vital attribute that goes to the heart of PPS Mutual and our core as a mutual company in Australia. Sustainable practice is also a part of our DNA – our affiliate company PPS South Africa has been operating successfully as a mutual provider of life insurance for over 80 years and has distributed billions of dollars back to its members by way of profit share.

I feel that it is the fundamental mutuality principle of sharing profits with policyholder members and looking after their interests and needs first that has stood the greatest test of time.

In fact, recent research by the International Cooperative and Mutual Insurance Federation (ICMIF) shows that in the ten-year period since the 2007 Global Financial Crisis, the mutual and cooperative insurance market has been the fastest growing part of the global insurance industry.

Since launching the PPS Mutual Professionals Choice product four years ago, PPS Mutual is now making a fourth consecutive Profit-Share distribution to our Members. This year we are proud to announce a Profit Share rate for FY2020 of 7% of premiums paid plus 4.5% of opening balances.

This equates to a Total Profit-Share Assignment for FY20 of $1,251,873. We are also happy to share that the Profit-Share Pool has doubled this year and now sits at over $2.4m. Since inception, we have assigned profits every year of at least seven per cent of premiums.

To share an example, we have one Member with a Profit-Share account balance of more than $20,000 and one Member who has accrued $10,000 in Profit-Share despite only paying one premium before claiming.


There are no penalties for claiming

A Member’s share of the profits is not affected if they claim and they are still eligible to receive their Profit-Share allocation while they are on claim. It is also important to note that if a client makes a claim on their PPS Mutual Insurance plan, it has no direct effect on the amount of Profit-Share available to them. However, it is worth remembering that any claims do of course diminish the overall pool of money from which profits are drawn.


What does the Profit-Share mean for advisers?

Firstly, we believe in the value of advice and the only way for professionals to become a Member of PPS Mutual is to be introduced to one of our accredited advisers (who all receive formal product training). One of our goals is to help advisers build a more sustainable service offering. The unique Profit-Share element of our policies translate into long-term relationships with premium clients, which lead to a more profitable practice.

The success of the PPS Mutual model is evident in our lower lapse rates and higher than industry average premiums. PPS Mutual’s policy lapses currently sit at a modest 4%, compared with a double-digit industry average of 15%1. These relativities in lapse rates are similar in South Africa for our associate company PPS South Africa. In terms of premiums, the average PPS Mutual premium of $7,000 is significantly higher than the industry’s average of $2,5001. Our Mutual model therefore enables us to generate more sustainable, higher value business, allowing our accredited advisers to also share in the success of our Mutual offering.

As an example of some recent success stories we have one adviser group whose clients received profit share assignments of over $200,000 in 2020, one adviser group whose clients have Profit-Share Account Balances totalling over $380,000 and another adviser whose clients have Profit-Share Account Balances totalling over $200,000.

What do advisers say about the PPS Mutual profit share arrangements? Specialist risk adviser Amanda Levine from North City Group said she was delighted to find out that her client, who is on a long term claim with PPS Mutual, has continued to accrue a profit share allocation whilst on claim and that his Profit-Share balance is among the largest in PPS Mutual Australia. Amanda said: “This highlights the inclusivity of the mutual model and shows that it benefits policyholders, despite unforeseen circumstances.”

Or this from David Davidson, Managing Partner of Priority Life: “PPS Mutual’s Profit-Share is a unique feature of its policies that brings something different to the conversation with existing and prospective professional clients. Now with Profit-Share accounts reaching over $380,000, our clients are gaining additional value from their insurance. The discussion with prospective clients around the benefits of professional insurance contracts that also provides a profit share has become a much more engaging conversation.”

If you’d like some more information on how the Profit-Share works click here for answers to our frequently asked profit-share questions or if you’re interested in more information on becoming one of our accredited advisers click here for how you can share in the benefits of being a specialist in protecting professionals.


1 NMG Retail Advice Channel Risk Distribution Monitor Q2 2020

Michael Pillemer

Chief Executive | Member of the Board and management team