Weaknesses in the co-operative structure

3.4.1. - Capital
Mutuals principally rely on retained earnings to expand their capital base, they are unable to raise capital by issuing equity. This restricts their ability to undertake large and long term investments, preventing them from entering into new lines of business, regions or making acquisitions (Birkmaier 1999, Ledbeater & Christie 2000, Ullrich 1997). At or near the subsistence level, the poor have little available for saving and whilst these can be mobilised, to depend on them to provide the required capital is unrealistic in the short term (ILO 1974).

3.4.2. - Accountability
Offering insurance through co-operatives or credit unions as member benefit schemes surpasses regulatory requirements. Without the legal requirement of audited financial statements and performance reports, there is a greater need for internal mechanisms and transparency to ensure sufficient controls and checks are in place. Additionally, without the incentive of stock options to guide managers’ objectives and insufficient board control and expertise there is a greater possibility of fraudulent activity by company officers. Lack of control on managers also leads to members needs being ignored in product development and a lack of motivation to open membership to other groups. The co-operative can become an inward looking and stagnant organisation, it can also become a tool for government manipulation and propaganda (Hulme & Mosley 1996). Access to services requires permission from group leaders, who may abuse their privileged position to favour certain parties, be tempted to steal funds and exclude the poorest in the community. Mutuals, therefore, tend to concentrate more on lines of business that require limited management discretion and with less underwriting risks which may be to the detriment of the needs of the policyholder (Birkmaier 1999, Brown & Churchill 2000, Birkmaier 1999, Ledbeater & Christie 2000, McCord 2001).

3.4.3. - Technical expertise
Group leaders are not insurance professionals or managers and are unable to manage the scheme effectively and efficiently (McCord 2001). Managerial salaries in co-operatives tend to be lower than in the private sector and therefore cannot attract qualified personnel and modern technology (IDB 1977, Ullrich 1997). Limited experience in collecting and analysing data makes it difficult to design suitable coverage, establish premiums and set up adequate claims reserves (IDB 1977). There is an overwhelming need by co-operatives in developing countries for technical assistance and financial support to enable them to manage their insurance schemes (Rutherford 1999b, ILO 1974).

3.4.4. - Size
As the organisation grows it tends to lose its co-operative identity and also its closeness with its members needs (Ullrich 1997). Conversely, the organisation can also become inward looking and become an exclusive group, which prohibits new members and stifles innovation and progress (Ledbeater & Christie 2000).