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Change is set to take another giant stride through the building society industry this autumn if the Government's planned reforms are not overtaken by political developments. The proposals would put foreign buyers on a level playing field with UK institutions when it comes to taking over building societies and more details are set to be circulated for discussion on Monday.

If it goes ahead as planned a new set of medium and small societies too small to carry the costs of converting into banks and diversifying their business will be put into play and become potential targets for mergers and takeovers.

Mergers of roughly equal parties to form larger mutuals are unlikely to generate any bonus bonanzas for members. But pre-emptive takeovers by UK banks, which are finding it hard to match the more aggressive mutuals like Nationwide and Bradford & Bingley, are now quite probable. It might well be cheaper for quoted lenders to buy up the cut-rate mutuals rather than compete with them.

Foreign lenders would certain need to offer some sweeteners to persuade members of mutuals to succumb, but the evidence suggests that every borrower and saver has his or her price, and it is not very high - perhaps pounds 500 to persuade them to sell out their mutual society membership.

Perhaps half a dozen societies led by the Bristol & West could be taken over, although it is much less obvious which are the most likely candidates now than it was a year ago.

Change is also taking another step through the financial services industry, this time through insurance. Legal & General this week announced its intention to follow the Pru in offering its customers a basic banking service in the form of simple savings accounts which customers can use to build up a pot of mone. The company hopes this will then be used to buy its mainstream insurance-linked investment products.

In the same week the Prudential announced its intention to follow Legal & General and distribute some of its surplus assets to its "investors". These are known as "orphan" assets because they are surplus to the funds needed to meet the claims and pay out the policies, and are now said to be available to pay out sweeteners and make the business stronger and/or more attractive.

Although both the Pru and Legal & General have identified several hundred million pounds worth of orphan assets, they have to be compared with very large numbers of individual policyholders and shareholders in both institutions.

Individual payouts are likely to be measured in hundreds of pounds rather than tens of thousands. Deciding how to share them out between policyholders and shareholders is in itself a potential minefield for quoted insurance companies which mutual insurers do not face.

Shareholders own the business but the policyholders are the customers, whose loyalty is the basis of the future growth. If the distribution is botched it could create more ill-will than goodwill.

There is also the risk of disposing of assets which may be of priceless value in tiding the companies through future as yet unforseen financial difficulties. Given the potential for getting it wrong, the insurers might be forgiven for deciding to use the money to finance business development.

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