Following the demutualisation of NRMA Insurance, many issues should be taken into consideration. Firstly, demutualisation is the action of changing the organisation from being mutual or cooperative to some other corporate organisation (Dictionary 2005). NRMA Insurance prior to its demutualisation was a company owned by its members and in 2000, became a listed company currently known as Insurance Australia Group. Demutualisation and listing of NRMA Insurance would encourage a more disciplined environment for the management so that they can better solve problems and conflicts within the organisation.
Through demutualisation, there would be separate boards and senior management teams for both the Association and Insurance, allowing each to focus on the core business. Also due to the demutualisation of NRMA, members would be issued shares, allowing access to wealth of the insurance. Although it seems that the members were not given proper attention to the meaning and benefits of mutualism. This brings up the point that the New South Wales Supreme Court found that NRMA’s prospectus was misleading because it said that members would receive free shares (Bob Baxt, 1995 pp.
216), where reality was members were being bought by shares in order to give up their rights. This is an ethical issue that NRMA did not consider, as they conned two million members in their prospectus. As an organisation, NRMA had the responsibilities to let the members know what exactly will happen once demutualised, the fact that members were mislead affected society’s view on NRMA. Another reason NRMA push for demutualisation could be for self-interests.
Directors can count on higher fees and managers on a higher salary package, and opportunities may arise for them to move into lucrative senior management positions. For example, had the AMP remained a mutual, its recently-departed CEO, George Trumbull would not have been on an annual salary of $2. 7 million, had entitlements to $10 million in share options over a three-year period or received a $14 million payout when his contract terminated (Race Mathews, 2000). Another advantage for management is that managers know that they will receive shares on the condition of demutualisation.
Therefore it is clear to say that self-interests are far more superior to what they currently have as a mutual. Through this it seems that NRMA Insurance adopted the utilitarian view of management, which considers ethical behaviour as that which advances long term self-interests (Schermerhorn, Campling, Poole & Wiesner, 2004, pp. 149). Though the demutualisation of NRMA may have been in the short term benefits for members and management, the cost to society seem to override these benefits.
Firstly, following the demutualisation of NRMA, the Association side of the group no longer had special rights as a member of the Insurance side and Insurance were permitted to pay dividends and return capital to members (Gaye Morstyn, 2001, p. 23). Also members will lose their rights for shares as a result and therefore all the decisions and control will come from the new owners and top level management. Another cost to society following the demutualisation of NRMA would be the fact that Insurance premiums increased, even though NRMA promised otherwise when members were asked to vote on demutualisation.
From 1 November the standard $55 annual membership fee, providing unlimited road service, goes up to $75, an increase of 36 per cent. Which is nowhere near the 3 per cent CPI figure members were promised (NSW Legislative Assembly Hansard, 2002). Also members that have been with NRMA for over 50 years, that use to receive lifetime free membership, will have to pay 50 per cent of the cost for that membership. As you can see, the demutualisation of NRMA provided financial problems to society as well as their loyal members which are the backbone of the organisation.
Members who will be affected most would be pensioners and low income earners, who can least, afford these increases and who need the service the most. As a result of demutualisation, NRMA Insurance has lost its focus on serving its members and customers with the best quality service and products for the lowest price. Therefore, NRMA adopted a classical view to social responsibility, where management’s only social responsibility is to maximise profits (Robbins, Bergman, Stagg ; Coulter, pp.
136). This is evident through the premium increase and the salary packages received by management following demutualisation, which brought up many social and ethical issues within NRMA. As a public company, NRMA failed to be socially and ethically responsible. NRMA as a mutual company was very successful and did not require demutualisation. As a mutual, members and the society would receive quality products and services for a low cost, which is the main reason NRMA was established.
Though following the demutualisation of NRMA, many issues were raised as to wether management was socially or ethically responsible for the loss to society, and its members. These issues seem to be very important due to the fact that the NRMA service is essential and a virtual monopoly state wide. An issue that should be considered about the demutualisation of NRMA is the fact that members were misled and management did not clearly give meaning to the benefits of a mutual; more or less NRMA tried to push for demutualisation by telling members that they will be issued free shares.
Although it seemed that members were not aware of the fact that they will lose they rights as members once the company went public. Also the financial costs to society were at large, as premiums increased and service decreased. Life time members of NRMA would have to pay the difference of the membership cost, which they use to get for free, and pensioners and low income earners who need the service most will definitely suffer from these financial costs.
Evidently, it seems that NRMA as a mutual was more focused on members and customers, and presently, the public company’s aims are purely based on maximising profits. Not only did the demutualisation of NRMA affect society as a whole, member’s that gained short-term financial benefits, suffered long-term financial costs. Thus concluding that the performance of NRMA as a mutual was not unsuccessful nor was it failing, and demutualisation was not the best option. As a mutual, members and customers beliefs were valued, and for society it seemed that NRMA would be best kept as a mutual.