Why might Employee-Owned businesses represent a better bet for insurers?

Employee ownership has gathered momentum across businesses in both the UK and abroad and is the ownership structure of several of the UK’s largest businesses including the likes of John Lewis, Mott MacDonald Group, and Howden Group Holdings. In fact, employee ownership has doubled in the UK since 2020 and continues to be a fast-growing method of company ownership (Employee Ownership Association 2022).

Employee ownership vastly changes business culture – evidence suggests that giving employees ‘skin in the game’ can enhance businesses’ performance. This means that employees in EO owned businesses are given more responsibility and control to influence everything from top level decisions right down to day-to-day tasks.

It’s easy to see why many businesses have found it so compelling to utilise the employee ownership model to develop their business, reward their employees, and become more competitive.

Let’s dive a little deeper into what employee ownership means for employees.

Employees have more rights, such as:

• A share of the profits
• Openness and transparency throughout the organisation about its performance
• Control over who runs the business and management is accountable to the employees

Employees also have more responsibilities, such as:

• Ownership and care towards the overall performance of the business
• To own the company’s principles and build value
• Influence how they perform their work and influence on fellow employees

Research by the Employees Ownership Association suggests that there are several key factors that influence being a successful employee-owned business. Not least the people, who are a fundamental factor; trusting and diligent employees will mean better performance – especially when they have a stake. Employee ownership often entices top industry talent and can be a serious driver in pushing EO businesses forward, building a successful organisation based upon their talent and long-term goals.

Investment in employees and the business is also critical and often it’s the choice of the employees to invest in the business effectively to enhance its performance, which also supports the businesses competitive advantage over the long term.

What does this mean for insurers?

The above shows us that employee-owned businesses can successfully develop a different culture and cultivate a competitive advantage over other businesses. What’s more, the cultural nuances have a bigger impact upon how insurers might view these businesses:

• Ownership and employee responsibility leads to better internal governance and adherence
• Incentivisation leads to more responsibility for employees to hold colleagues accountable for their performance on all metrics
• Better talent retention and employee engagement leads to better policy and process adherence
• Evidence shows better growth than non-EO business, leading to less financial risk and better company survival with a focus on long-term sustainability
• Less absenteeism, improved behaviours, and employee engagement means better physical risk due to appropriate resourcing
• Improved controls and commitment to health and safety reduce potential liability claims
• More engagement and job satisfaction which would, anecdotally, reduce the chance of spurious claims from disgruntled employees or employment disputes

We can see that the cultural and organisational changes enacted by employee ownership can really help to manage risk. It’s one thing to have perfect policies in place for IT, Workplace Safety, or HR – however, realistically being able to count on diligent and experienced staff using common sense to apply those great workplace practices is a sure way to reduce risk. A reduction in risk should make a business more appetising to insurers and can mean that brokers who understand employee ownership can leverage the information to improve insurance policies and generate premium savings.

If you’d like to find out more about employee ownership, email our Associate Director, Jack Durrant on [email protected].

References

Employee Ownership Association, 2022, Stories, EO Stories 2021 | Employee Ownership Association
Freeman, S.F., 2007. Effects of ESOP adoption and employee ownership: Thirty years of research and experience. Effects of ESOP Adoption and Employee Ownership: Thirty years of Research and Experience (upenn.edu)
Rooney, P. M. (1992). Employee ownership and worker participation: Effects on health and safety.
Economics Letters, 39, 323 – 328.