A mutual insurance society (in Russian, OVS) is an organisation in which people or companies join together to insure one another. Members are both policyholders and "co-owners" of the insurance fund. It is one of the oldest forms of insurance: in many ways, the insurance business worldwide began with it.
Legal framework
In Russia, mutual insurance is governed by Article 968 of the Civil Code and Federal Law No. 286-FZ of 29 November 2007 "On Mutual Insurance". The general basis is Law No. 4015-1 "On the Organisation of Insurance Business in the Russian Federation". A mutual society is an insurance market participant: it needs a Bank of Russia licence to operate, and the central bank supervises it.
How a mutual society differs from an insurance company
| Feature | Insurance company | Mutual insurance society |
|---|---|---|
| Legal form | Commercial organisation (JSC, LLC) | Non-profit organisation (consumer society) |
| Purpose | Making a profit | Insurance protection of its members |
| Who it insures | Any clients | As a rule, only members of the society |
| Source of payments | The company's own funds and reserves | Insurance funds formed from members' contributions |
| Governance | Shareholders or participants | Members through the general meeting |
Under the Civil Code, insuring the interests of non-members is allowed only under special conditions: if the charter provides for it, the society is set up as a commercial organisation and holds the relevant licence.
How a mutual society is organised
- Membership. On joining, a policyholder becomes a member. The procedure for joining and leaving and members' rights and duties are set by the charter.
- Contributions. Members pay entry and insurance contributions. The charter may also provide for additional contributions — for example, to cover a deficit if payments exceed the funds collected.
- Insurance rules. Approved by the society; they define insured events, exclusions and the payment procedure.
- Governing bodies. The general meeting of members, the board, the executive body and the audit committee.
- Insurance reserves and funds. Formed from contributions and used for payments.
Where mutual insurance is used
Mutual insurance is convenient when a group of participants share similar risks and a common interest: professional communities, companies in the same industry, agricultural producers, carriers, cooperatives. Participants know their risks better, can set the rules themselves and do not pay a "profit margin" to an external insurer. Worldwide, mutuals are widespread, for example, in marine insurance of shipowners' liability (P&I clubs).
In Russia, mutual societies are found in property, liability, transport and agricultural insurance. The Bank of Russia's register of insurance market participants lists active mutual insurance societies in various regions. There is also a professional association — the National Association of Mutual Insurance Societies.
Pros and risks for a member
Advantages
- influence over rules and rates through the general meeting;
- insurance protection "at cost", without a commercial mark-up;
- the ability to insure specific risks that do not interest large insurers.
Risks
- large losses may require an additional contribution;
- a small society's financial capacity is limited, so reinsurance protection is important;
- like insurance companies, a mutual society can have its licence revoked by the Bank of Russia — such cases have occurred in recent years.
Mutual society or insurance company: how to decide
A mutual society suits those who are ready to take part in governance and share risks with other members. If you need standard cover without any obligation to make additional contributions, a contract with an insurance company is simpler and more familiar.
What to check before joining
- A valid licence in the Bank of Russia's register of insurance market participants.
- The charter: contribution procedure, conditions for additional contributions, rules for leaving and getting funds back.
- The insurance rules: insured events, exclusions, payment deadlines.
- Financial statements and reinsurance protection.
- How the society handles disputes: appeals to the financial ombudsman and the courts.
If you are unsure whether to choose a mutual society or an insurance company, compare the terms with offers from the insurance company catalogue, and for businesses see the Business insurance section. Polis Re specialists will help you assess the options if you send a request.