James Moore: Royal London looks set to prove a strong mutual is in the interests of all

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The Independent Online

Outlook Royal London has quietly become a force almost without anyone noticing it. The mutual life insurer has gobbled up the Co-op's life insurance and fund management business, the latest in a series of acquisitions.

There may be more to come too – the UK still has a surprisingly large number of small life insurance funds, many of which would benefit from being part of a larger organisation with economies of scale, more up to date admin systems (hopefully) and lower costs.

There is a very good chance that you will see Royal London's name attached to more deals in the future. The society is in with a serious shout of becoming the UK super-insurer that Clive Cowdery tried, and largely failed, to create with Resolution mark 2.

Good, you might think. After all, the mutual model in financial services is a seductive one. In theory, businesses owned by their customers ought to do a better job for those customers than businesses owned by shareholders.

In practice, mutuals – at least in financial services – have proven every bit as fallible as their plc counterparts. They've been up to their neck in almost all of the scandals that have blighted the sector over the last 20 years.

The problems that have caused so many to flounder, from Equitable Life to Standard Life as well as some of the smaller fry taken over by Royal London, have at their core poor governance.

Mutuals aren't under the same sort of scrutiny as plcs. Lacking even the limited pressure brought to bear on the latter by institutional shareholders has in the past allowed problems to fester.

Too often, mutual insurers (building societies too, if truth be told) have let down their owners thanks to a mixture of complacency, hubris, and out-and-out bad practice. With only weak non-executive directors able to exert real pressure, they have too often allowed themselves to become part of the problem, and the sector has largely been the author of its own downfall. Royal London has at least added some heavy-hitters to its board, although heavy hitters don't always do the job one might expect. Lots of banks have had them on their boards too. And lots of insurers did during episodes such as the mis-selling of pensions and endowments.

At least regulators are more vigilant these days. And as Royal London grows in size and clout, it will attract more attention generally.

It has an opportunity to prove that the mutual model can be made to work for its policyholders. Having a powerful mutual ought to be in everyone's interests (except perhaps those of its competitors). So it is to be hoped this mutual can rise to the challenge. If it can, other, weaker, rivals could be beating a path to its door in a bid to join the party.