CHAPTER 2
The Primary Insurance Models Zainal Abidin Mohd Kassim
We start by considering the mutuals and how they manage risks. The micro model for the mutual is the family unit itself. Indeed, in many societies the individual turns to the family for assistance in times of need. The problem with such arrangements is that, while the monetary loss of the individual can be compensated by assistance from other members of the family, the family as a whole remains in a position of monetary loss. Assuming that the financial loss will be spread equally among all individuals in the family, the monetary loss per family member is smaller the larger the family. If the family consists of just five individuals, the loss spread over five individuals is greater per individual than if the same loss is spread over 50 individuals. For this reason, the concept of organized mutual assistance funds grew among affinity groups, such as people in the same profession or of the same religious belief—the predecessors to mutual insurers and friendly societies. This commonality in profession and religion added a degree of trust in the stewardship of the mutual or friendly society, which was often managed by the senior members of the affinity group itself. Profit making was not the target of mutual insurers. Rather, service and affordability were the main concerns. By definition, a mutual o rganization is one in which the customers are also the owners of the organization. Financial benefits among the policyholders within a mutual can be derived 21