The officers and directors of mutual insurance companies are legally responsible to act in the interest of the company and the policyholders and to discharge these fiduciary duties with the care, skill, and diligence that a prudent person would use under similar circumstances.

This duty of care requires concern, attention, diligence, and assurance of thoughtful and good faith decision-making in discharging the tasks of a director or an officer. Their duty of loyalty requires them to place the interests of the company above their self-interest.

As nuanced and complicated as these fiduciary duties and responsibilities have been in the past for mutual insurance company officers and directors, the dramatic social changes of 2020 may impose even greater pressure to apply non-financial standards to company underwriting and investment, specifically, environmental, social, and governance standards, or ESG. These considerations can impact a company’s ability to execute its business strategy and create value.

NAMIC published a white paper in 2019 to assist NAMIC member companies in developing specific understanding of the impact of these standards on their business. The paper’s intent was to define ESG and regulatory approaches to these issues, standards, and their development in the insurance industry and outlined reasons why and why not to apply ESG to insurance.

The recent and continuing social unrest has resulted in a multitude of businesses examining what role, if any, they have in addressing the perceived causes of the unrest. Senior executives and board members at many companies – including mutual insurance companies – are examining what they can and should do to address social disparities and threats. Many companies have joined in a chorus of voices to focus outside their primary business function to take action to make their community a better place. For mutual insurance companies, there is an overriding question of whether and how such actions align with their responsibility to provide the proper and complete protection to policyholders.

The purpose of this paper is to define the movement for greater social responsibility for companies and suggest how mutual insurance company management and boards can consider such actions while maintaining the duty of care and loyalty to their companies to which they are legally and morally bound.

Resource Details

Publish Date

October 19, 2020

Topics

  • ESG
  • Mutuality