Is the Widow in the bag?

In a week in which policyholders at NPI, the life company best known for its squirrel ads on the television, voted overwhelmingly for a cash windfall, and speculation mounted over the future of Scottish Widows, Britain's pounds 200bn mutual life insurance industry became the latest target of the carpetbaggers.

Satiated on the spoils of the building society world, where a determined dilettante could have pocked more than pounds 40,000 by strategically placing modest amounts in risk-free investments with the right societies, they are rushing with enthusiasm to exploit what they hope will be the next wave of demutualisation.

Scottish Widows was last week besieged with calls from customers attempting to open policies in the hope they might share in any windfall, after it confirmed a story in The Independent that it was reviewing its mutual status.

Although the insurance giant this week stressed that this latest look at its structure in no way diluted its commitment to mutualisation, it may already have sealed its fate by announcing it could be up for grabs.

The demutualisation bandwagon has a momentum all its own, which can be unstoppable, once customers get a whiff of free shares. When Norwich Union floated two years ago, 99 per cent of its policyholders backed the share issue.

A spokesman says: "The vote was overwhelmingly in favour of demutualisation. I think it's safe to say that the prospect of free shares played a part in their decision."

However, carpetbagging an insurance company is nothing like as easy as a building society, where a short-term investment of pounds 100 was, at one point, all that was needed to trigger windfalls of thousands.

Membership rules of the life societies are more complex, and can differ from company to company. Scottish Widows and Friends Provident, for example, give some membership rights to term assurance policyholders, while others, like Standard Life, limit membership strictly to its with-profits contracts.

Furthermore, the shortest policies normally run for at least 10 years. Starting one will tie your money up for a decade if you want to avoid penalties.

Finally, the payouts from life company takeovers and demutualisations have been significantly lower than those of the building society sector, often with just small bonuses paid on maturity, which may in itself deter carpetbagging activity.

This is because a building society's assets are mostly property, owned by it until the borrower pays off a mortgage. A mutual insurer's assets are mostly in its life fund. The money in that is already "owned" by policyholders investing in it and will in any event be paid to them when their policies mature. Unless clever ways are found to unlock part of these assets in the life fund, as happened with the Pru's takeover of ScotAm and AMP's plans for NPI, payouts remain small.

However, that could be about to change. Customers are more aware of how members can determine the future of an organisation, and demand immediate payouts of significant size. This is best illustrated at Scottish Widows, where a small group of customers has rebelled over the size of this year's bonuses. A group of malcontents is currently holding Scottish Widows to account over why the bonus rate is in single figures after a spectacular year on the markets.

Similarly, Equitable Life is in hot water after reneging on pension guarantees made more than a decade ago. It is going to the high court in just over a month, in the hope that its position will be ratified. It too is facing a challenge from members over the poor performance of some of its investments.

The irony is that this new-found democracy at work in our mutuals increases, rather than diminishes, the likelihood of a float or takeover.

Of the insurers to have demutualised, Norwich Union members have received the biggest distributions so far, with the minimum allocation of 150 shares now worth around pounds 622. Some received much more - plus the offer of shares at a 100p discount.

Months earlier, Scottish Amicable was sold essentially for an average pounds 250 cash payout, topped up by an additional bonus paid into the policy. Companies have been sold for less.

But a number of mutuals would command a premium. The best example of this is Standard Life. Others which could still float or make attractive takeover targets include Friends Provident, Scottish Provident, Scottish Life, and Liverpool Victoria.

The cheapest way to buy into Standard Life is through a 10-year endowment, which has a minimum monthly premium of pounds 20. The company's policy on surrender means that if you ceased the policy early, perhaps after a windfall, you should at least get your premiums back.

Membership of Friends Provident can be bought most cheaply through a term policy, with a minimum monthly premium of pounds 15, or a 10-year endowment which has a minimum pounds 30 monthly premium. Liverpool Victoria membership has a minimum entry cost of pounds 2,500 pounds in a lump sum investment, or pounds 15 monthly savings plan.

Royal London's cheapest membership policy can be bought from one of its door-to-door collectors for pounds 10 pounds monthly, or cheaper still (that is with a lower charging structure), for the same premium direct from the company.

Scottish Widows membership can be bought for the price of its cheapest term cover, which is usually lower than a with-profits policy.

But all this information should be taken with a pinch of salt, because as the company itself points out: "The question of who might be entitled to any benefits or payouts is unanswerable because this issue would depend on the terms of any demutualisation. It is unsafe even to presume that in the case of a mutual life office demutualising that only with-profits policyholders would be offered benefits, because that is not necessarily the case."

And anyway it's all pointless because all these mutual die-hards are committed to mutuality. Now where have we heard that one before?