Millions will lose out as insurers rush to go public

The rush to the Stock Exchange by mutual insurance societies as they convert themselves into public companies is likely to lead to millions of policy- holders losing out.

On the day that Norwich Union announced its pounds 4.5bn float on the Stock Exchange, an investigation conducted for The Independent found that mutual societies are much more likely to give top payouts on life insurance policies than conventional companies of the type Norwich is to become. It raised questions about whether policyholders will benefit from conversions by mutual societies.

The survey was carried out by John Chapman, a former official at the Office of Fair Trading. Three of the top four in Mr Chapman's rankings - Equitable Life, Norwich Union and Standard life - are mutuals. Six of the top 10 are also mutuals, and a further company in the top 10, Scottish Mutual, was owned by its policyholders until four years ago.

At the other end of the scale, four of the bottom five are proprietary companies, and are among the biggest names - Royal Insurance, Sun Life, Prudential and Britannia Life.

In total, seven of the bottom 10 are proprietary companies in Mr Chapman's specially devised rankings.

Norwich Union's announcement yesterday signalled the start of an expected rush by mutual insurance societies to follow the building societies and abandon mutuality. Almost three million of its policyholders will receive at least pounds 500 and perhaps up to pounds 2,500 in free shares from the flotation next year, which is expected to value the company at pounds 4.5bn.

Under mutual status which Norwich has abandoned, the insurance group is owned by its policyholders and pays no dividends to shareholders.

Proprietary insurance companies are owned by shareholders, either directly through the stock market or as subsidiaries of other companies. Mr Chapman says his ranking "shows the strength of the mutuals. After all, they ought to outperform proprietary companies. They do not have to give away 10 per cent of their earnings in transfers to shareholders." Proprietary companies are allowed a share in the profits of the life insurance funds they run.

Norwich Union, which celebrates its 200th anniversary next year, originated in 1797 as Norwich Union Fire Insurance, founded by Thomas Bagnold, a City of London wine merchant who had moved to Norwich and had spotted a gap in the market.

Until the Norwich announce- ment, insurance companies have been slow to follow the lead of the building societies by abandoning their mutual status.

Building societies that have converted include Abbey National and Cheltenham & Gloucester, and next year the Halifax, the biggest of all the societies, will become a stock market-quoted bank.

Although some other leading mutual insurers, such as Standard Life, insist they have no plans to convert, there was a similar initial reaction by other top building societies to Abbey National's pioneering decision.

Industry experts believe that the pressure will soon mount on other insurers to join the stock market.

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