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HMRC internal manual

General Insurance Manual

Mutual insurance: particular types: health mutuals: background

The majority of mutual health insurers are what is known as ‘voluntary mutuals’, or ‘contributory funds’. They have their origin in the so-called ‘Saturday funds’ which began to be set up in the 1870s. The Saturday funds were originally set up to support local voluntary hospitals. Contributors were assured of free medical treatment. They were called Saturday funds because in those days workmen were paid on a Saturday and it was then that they made their contributions. Over the years the business evolved into what became largely the provision of accident and health insurance within what are now paragraphs 1 and 2 of Part 1 of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order SI2001/544 (previously Classes 1 and 2 of Part 2 of Schedule 1 to Insurance Companies Act 1982).

Some health care insurers sought to argue that their business included PHI (permanent health insurance) within paragraph 4 of Schedule 1 Insurance Companies Act 1982, because such business was not within the charge to Insurance Premium Tax before amendments made by regulations in 1997. This attempt was not successful - see Manchester and Salford Hospital Saturday Fund v Customs and Excise Commissioners [1999] STC 649.

The main characteristics of the typical fund are that it is

  • locally based, and often has a strong and at times venerable local tradition
  • usually supported by local dignitaries
  • linked with a charitable trust to which the fund makes payments under covenant or by gift-aid supporting mainly local health and welfare charities.

A number of large insurers also offer primarily accident and health insurance. These insurers are typically more commercially orientated.

In the late 1990s a question arose as to the extent to which the insurance business of health insurers was actually mutual business, given that the absence of a profit-seeking motive does not preclude a finding of trading.