Why leave these mutual benefits behind?

Allan Bridgewater, chief executive of Norwich Union, puts his case for demutualisation and flotation on the stock market in such a compelling and plausible manner that it seems almost churlish to challenge him. There's no-one else to do it, however, so here goes anyway.

First, here's why Mr Bridgewater believes this is the way to go. He is not against the mutual structure of ownership as such, he insists; it is only that it has become inappropriate (always a nice word that) for a company such as Norwich Union, which with its substantial general and healthcare insurance business is much more akin to a composite insurer than a traditional life mutual.

According to Mr Bridgewater, this general insurance business sits uneasily in a with-profits mutually owned life fund. It is cyclical and volatile and therefore a source of some danger to the life fund, he claims. Moreover, the Department of Trade and Industry values it at just pounds 480m for the purposes of the fund, when on the open market it would probably be worth three or four times that amount. Policyholders are thus exposed to an inappropriate business which is failing to deliver value.

Up to a point all this is true, but whether it justifies going through the whole caboodle of demutualisation is another thing. The promised free shares are a nice little windfall ahead of the summer hols, but set against the long-term value of an endowment policy, even the top whack of perhaps pounds 2,000 worth of equity is not very much. As a consequence, the decision for life assurance policyholders is a much more difficult and complex one than it has been for building society members.

As our tables opposite show, there do seem to be real and tangible benefits derived from the mutual structure of ownership for life policyholders. It is by no means clear that they gain anything from conversion. Indeed the evidence is rather the reverse. Ah, but it will be different with us, says Norwich Union, which is admittedly already one of the top performers with one of the most efficient cost structures in the business. The point is, however, that it has achieved this position as a mutual, not as a joint stock company. Indeed, the proprietary structure seems on the evidence positively to encourage inefficiency and excessive costs. In the worst cases, these companies are little more than commission-driven rip-off operations, designed to enrich their shareholders and employees. No one would suggest that Norwich Union might become like that, but it is as certain as night follows day that in future it will be shareholders that management works for primarily and not policyholders.

Beyond the free shares, it is hard to see what Norwich Union members gain from this exercise. Despite realising what will presumably be a full value for the general insurance business, they are not, perhaps significantly, being promised any more than "existing policy expectations". So why do it? It's just possible that this is being forced on Norwich by financial weakness in the life fund, which needs recapitalising even to meet "existing expectations".

But part of the answer must also lie in Mr Bridgewater's belief that plc status is the most effective corporate structure to achieve "our business objectives". Whilst these are no doubt noble and worthy, it scarcely needs saying that they are not a good reason for converting. Whatever the Norwich board has in mind for the general aggrandisement of East Anglia, it is largely irrelevant to policyholders' interests.

In the end, policyholders need only ask themselves one question. Why should they give up a structure which appears to have served their interests far better over the years than the proprietary form of ownership they are being invited to convert into? Certainly we need better answers to this question than we have had. But let's not be naive about this. Regardless of whether Norwich can improve its case, short termism will triumph, and the free shares will be enough to persuade members to vote this through.