Mutual Insurance Companies

Traditional insurance vs. Mutual insurance: what’s the difference?

Not all insurance companies are run in the same way. In fact, there are two types of companies that provide property and casualty insurance, the types most consumers use. These include home, auto and life insurance. These companies are either owned by stockholders or by the policyholders. As you can imaging, there are significant differences between these two ways of running a business.

With stock insurance, the company is run by a board of directors that control how the money is spent, and is owned by either private investors or shareholders who have bought stock in the company. Dividends from profits are paid to the stockholders who have little say in the company operations.

Mutual insurance companies are run by a board of directors as well, but is owned by policyholders. Dividends are paid to the policyholders. These companies are not traded on the open market, making them more stable than a stock company that is subject to buyouts and other corporate takeover problems that may occur in a competitive market.

Because stock insurance companies can sell shares of stock to raise capital, they have more flexibility and expansion possibilities than mutual companies. The growth of mutual companies is often slow and steady, with modest profits.

Mutual insurance companies are owned by policyholders. Policyholders are those who have bought an insurance policy in the company and are insured by said company. This type of company does not trade on the open stock market, and therefore almost always never has shareholders. This can mean that such companies are subject to less regulatory oversight. The main advantage to a mutual insurance company is that policyholders have voting rights; this means they can vote on major decisions, such as executive personnel and policy.

The fact that every policyholder has a vote means that often the company has an incentive to create and market advantageous insurance options in order to keep the policyholder happy. There are some disadvantages: the absence of shareholders means that it can be difficult to raise capital for expansion and greater profits. Mutual companies may decide to demutualize, or become a stock company, in order to maximize profits.

It is important to know the difference between the types of company when choosing insurance. Why? For one, getting back that little dividend check is nice. Some companies instead invest dividends back into the company, reducing overall premiums.

But the main advantage to mutual insurance companies is the way policyholders are treated: like owners of the company. Claims services are likely to be more cordial and congenial, while claims are less likely to be unnecessarily scrutinized. The company will try to reduce claims costs, but not at the expense of an honest policyholder.

The transparency of mutual insurance company operations to member-policyholders offers a sense of fair play rarely felt by customers of stock insurance companies. Mutual companies look to the long-term future, rather than focusing on short term profits. In the end, these companies offer the best possible service at a more reasonable price. While not always cheaper in price, mutual insurance companies remain competitive in pricing and often outperform when it comes to customer satisfaction.