Cooperative insurance
Cooperative insurance allows different entities have one shared insurance policy. It is convenient, for example, when several companies operate in one office building. They share the same risks (burglary, fire, etc.). They also use the same areas (hallways, basement).
Purchase of one cooperative insurance is usually cheaper than buying several individual policies. It is also possible to transfer policy easier when one company leaves and new comes into the office building.
Cooperative insurance is also popular in some companies or trade unions which offer their employees or participants cooperative health insurance. Such insurance may cover health problems related to work, however, in some companies there are much more extensive policies available.
Cooperative Insurance Companies
Cooperative insurance companies are corporations organized like mutual companies for the benefit of their policyholders. The differences are related to the adherence to co-operative principles. The company can be formed as a stock company, form allowed by the laws of the country concerned. As a stock company, control of the cooperative insurance company is directly vested in other branches of the co-operative movement.
Cooperative insurance companies are linked to democratic, progressive movements' including cooperatives operating in other fields and labour unions. At first, the cooperative movement was particularly strong in Scandinavian countries but was also well established in Caiida, Austria, Switzerland and Japan. In recent years it has made rapid progress in some developing countries as well. The International Co-operative and Mutual Insurance Federation (ICMIF) is a voluntary association of insurance organizations whose constitutions are based on co-operative principles[1].
History
The Co-operative Insurance Company Limited was created in 1867 to provide fire and fidelity guarantee insurance to co-operative societies. In 1899, industrial life business was introduced and the company was converted into an industrial and provident society. Company changing name to (CIS) Co-operative Insurance Society Limited. Other classes of business were provided for the general public and not just for cooperative societies and their members. In 2002, Co-operative Financial Services was created as a holding company for both Co-operative Insurance Company and The Co-operative Bank.The Co-operative Insurance and The Co-operative Investments trading names were introduced in 2008.
In 2006, CIS divide its life and general insurance businesses into two separate entities General Insurance Limited within which all new and renewing insurance business was written. CFS Management Services Limited was created to provide common support services to both CIS and CISGIL[2]. In 2011, after 125 years, The Co-operative Insurance announced that it would cease providing life assurance products. In 2013, the Co-operative Banking Group agreed to sell the life insurance, investment and pension businesses to the Royal London Mutual Insurance Society in order to increase its chances of buying more Lloyds TSB branches due to be divested from Lloyds Banking Group. The intention to sell the general insurance aspect was also announced.
In May 2013, the Co-operative Banking Group withdrew from the agreed purchase of the TSB business referring to the economic outlook in the UK. The Group revealed a shortfall in its accounts of up. In July 2013, Co-operative Insurance Society became a private company limited by shares, changing its name to Royal London Limited.
Following the recapitalisation of the Co-operative Bank, The Co-operative Bank is now a separate legal entity to The Co-operative Group. Cooperative Insurance now forms part of The Co-operative Group's family of businesses.
Examples of Cooperative insurance
- Joint Venture Insurance: This type of insurance covers the risks that arise when two or more companies collaborate on a project. It covers the liabilities that occur due to the venture, such as damage to the property or injury to employees.
- Group Health Insurance: This type of insurance covers the medical costs of a group of people, such as employees of a company or members of an organization. It is often cheaper than individual health insurance plans, as the cost is spread across the group.
- Professional Liability Insurance: This type of insurance covers the costs of defending a professional against claims of negligence or malpractice. It also covers the cost of any damages awarded in a legal settlement.
- Property Insurance: This type of insurance covers the costs of repairing or replacing physical property due to damage or destruction. It can cover both private and business property, such as buildings, equipment, and inventory.
Advantages of Cooperative insurance
Cooperative insurance offers numerous advantages for businesses, including:
- Cost Savings: By pooling the resources of multiple companies, cooperative insurance can result in significant cost savings for all members.
- Coverage: By sharing a single policy, all members can benefit from a greater amount of coverage than if each entity were to purchase a separate policy.
- Risk Management: By having a shared policy, all members can access information about common risks and can work together to reduce those risks, resulting in a more secure environment for all.
- Flexibility: With a cooperative policy, members can tailor their coverage to meet the specific needs of their company while still benefiting from the shared resources of the policy.
Limitations of Cooperative insurance
Cooperative insurance has several limitations:
- It is not necessarily the most cost effective option for all parties involved. Different entities may have different risk levels and therefore need different levels of coverage.
- Each party may have different needs and wants from their insurance policy, making it difficult to find a policy that meets all parties' requirements.
- It can be difficult to determine which parties are responsible for the payment of a claim.
- Claims may be difficult to process when there is more than one policyholder.
- If the policyholders have different levels of financial stability, it can create an uneven risk-sharing structure.
One other approach related to Cooperative insurance is Risk Pooling. Risk pooling is when an organization or group of organizations join together to spread risk among the participants. This is usually done through the purchase of a policy from an insurance company, who pools the risk from each participant. Other approaches include Risk Sharing, Risk Transfer, and Risk Retention.
Risk Sharing is when the participants in a cooperative insurance agreement share the risks associated with their activities. This means that each participant contributes to the costs of any losses that occur, which helps to reduce the financial burden of the individual participants.
Risk Transfer is when the risks associated with an activity are transferred to a third party, typically an insurance company. The insurance company then acts as a buffer between the participants and any losses that occur.
Risk Retention is when an organization or group of organizations assumes the risk associated with an activity, rather than transferring it to another party. For example, a company may choose to self-insure against certain risks and losses, rather than seeking coverage from an insurance company.
In summary, Cooperative insurance is a form of risk management in which different entities join to share the risk associated with their activities, either through Risk Pooling, Risk Sharing, Risk Transfer, or Risk Retention.
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References
- Li Y., Wu Q., Liu C., Kang Z., Xie X., Yin H.,... & Ning, N. (2014). Catastrophic health expenditure and rural household impoverishment in China: what role does the new cooperative health insurance scheme play?. Plos one, 9(4)
- Outreville J. F. (1998) Theory and Practice of Insurance, Springer Science+Business Media, LLC
- Trenerry C.F., Gover E.L., Paul A.S. (2009) The Origin and Early History of Insurance Including The Contract of Bottomry, The Lawbook Exchange, Ltd
Footnotes
Author: Karolina Piotrowska
