“While the demutualisation of the NRMA may have been in the short term of financial benefits to members, the cost to society has exceeded this windfall profit. ” The National Roads and Motorists’ Association Limited, a mutual company owned by its members and operating as NRMA, continues to provide road services, vehicle inspections, batteries, touring advice and a host of membership benefits for almost 2 million members. The NSW branch of the National Roads and Motorists’ Association was born in 1923 and for more than 80 years the NRMA has worked to provide trustworthy and helpful service (NRMA, 2004).
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In 1925 NRMA Insurance Limited was established as a subsidiary to provide general insurance protection to the members of the Association, and in 1926 it was reconstituted as a separate mutual. The NRMA Group therefore comprised of two mutual companies. Although on the 24th July 2000, the demutualisation of the NRMA Group split the mutual into two separate organisations, National Roads and Motorists’ Association Limited and NRMA Insurance Group Limited, which is now known as Insurance Australia Group Limited.
As a result, NRMA Association remained a mutual still using the NRMA name, while NRMA Insurance became a listed company, using the NRMA trademark. Thus NRMA Insurance Limited is now listed on the Australian Stock Exchange. While the demutualisation of NRMA was in the short term of financial benefits to members, the cost to society has exceeded this windfall profit. There are many arguments for and against this topic of demutualisation, which will be addressed in regards to the social and ethical responsibilities within the NRMA group.
Although the question to ask is whether NRMA should remain a mutual run by its members or a company owned by shareholders. Comparing a mutual with a shareholder-owned company, there are many advantages and disadvantages that should be considered. Firstly, what is the meaning of a mutual? A mutual is an enterprise owned by its members, providing a variety of services to the members for their benefits (Dictionary, 2005). Mutuals are usually formed so that members can obtain goods and services which would normally be unavailable or higher priced.
As a mutual, NRMA provided members with insurance and motor services and also other financial products for a lower price than other businesses (Race Mathews, 1999 pp. 15). As a mutual, members have rights and decision making powers in the daily activities within the mutual, thus the mutual is more like a community than a business and conflict which may arise between members and customers can be better managed. An advantage of mutuals would be that they generally do not require substantial amount of initial capital, as ownership comes from membership which is based on acquiring a product or service (Gaye Morstyn, 2001).
Also NRMA did not have any tax disadvantages whilst being a mutual, as they did not intend to make large amounts of profits. NRMA, prior to demutualisation was more labour-intensive and less capital-intensive, focusing on serving members and customers. Though there are also disadvantages of NRMA remaining a mutual. Initially NRMA Insurance was established to provide low costs insurance to Association members, and in order to survive in the market, NRMA Insurance required to be competitive for both their product offerings and pricing.
Therefore the current size and complexity of the insurance market would be a risk to NRMA if remained a mutual. Insurance had grown significantly over time and had become a complex general insurance business operating in a highly competitive market (Gaye Morstyn, 2001). Therefore if NRMA Insurance fails to compete in the market, the risk of a corporate takeover can arise. The dual mutual corporate and membership structure of the NRMA Group fails to protect Insurance from a take over offer. Such examples would be the demutualised National Mutual Life Society, which had under-performed and been taken over by the French insurance AXA.
NRMA however has proven to be a successful organisation as a mutual, which gives the lie to claims that its demutualisation was motivated by commercial necessity or competitive advantage (Race Mathews, 2004). Another disadvantage to being a mutual is that the law provides little protection for mutuals and fails to acknowledge their existence as a business (Santow J, 2000). Therefore mutuals can be demutualised at any time by its current generation of members, without considering the intentions of past generations and the interests of those in the future.
This point brings up an ethical and social issue within the NRMA Group as members values and beliefs from past generations have been removed from the organisation due to demutualisation. As the law does not protect mutuals from such issues, member’s interests have not been considered and it appears that the NRMA Group lacked social responsibilities, a business firm’s obligation, beyond that required by the law and economics, to pursue long-term goals that are good for society (Robbins, Bergman, Stagg ; Coulter, p.
138). As a mutual, NRMA developed a socioeconomic view, where management’s social responsibility goes well beyond the making of profits to include protecting and improving society’s welfare, which have been stated above. Although it seems that the NRMA Group has lost its main focus on serving members and customers following the demutualisation of NRMA Insurance.