Mutual Insurance Company

When we speak of the types of insurance companies known to man, Mutual insurance company has been in existence and serving their purpose since the beginning of their kind.

Ultimately, mutual insurance first began in 1752. it was an idea from a man named Benjamin Franklin. Then, he made some people come together and contributed to the insurance of houses from the loss of fire.

And ever since then, mutual insurance has become a widely accepted activity all over the world. Furthermore, there is the National Association of Mutual Insurance Companies that came into existence in 1895 between the United States and Canada. The sole purpose of the association is for education and advocacy.

What is Mutual Insurance Company?

So, a mutual insurance company is a type of insurance company that is owned by the policyholders. A mutual insurance company also provides insurance coverage for the policyholders. More so, the members of the mutual insurance company have the right to appoint management in the company.

It is important to note that, the federal law recognizes it, and determines if an insurer can be a mutual insurance company. This insurance company makes investments and the profits from those investments will be shared among the policyholders as dividends. However, these the policyholders can decide to receive their profits by reducing the amount they pay for premium. In contrast, the policyholders may decide to reinvest those profits back into the company.

Mutual Insurance Company vs. Stock Insurance Company

Oftentimes, there are confusing moments between mutual insurance companies and stock. People often refer to stock as a stock insurance company, however, you can not fault them for this. So, here is a clearer definition

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A stock insurance company

This type of insurance company belongs to the shareholders or stockholders. The primary purpose of the company is to make profits for them the shareholders.

As it stands, stock insurance shareholders must have an amount or a capital to become a part of the company before they are welcomed by the regulators.

Again, policyholders in a stock insurance company do not have direct shares in the profit or loss encountered by the company. And they do not have control over the company’s management.

Mutual Insurance Company

On the other hand, this is a company that is fully owned by the policyholders. This type of insurance company makes investments and shares the profits between themselves as dividends. Most times, the policyholders collectively decide to use the profits they made and reduced members’ premiums.

The goal of these companies is to maintain enough capital to meet up with the policyholder’s needs. And each policyholder in the company is entitled to a share of the company’s profits.

Advantages of Mutual Insurance Company

There are perks to this type of insurance setting.

  •  Regular profit

The greater part of the advantage is that all the policyholders are entitled to any investment profit the company makes in form of dividends. Since the policyholders collectively own the company, they are all entitled to the profits coming out of any investment they do.

  • Low premium

Here, the policyholders might decide to replace their profits with low premiums. While other policyholders in other companies pay a high percentage for their premium, policyholders in mutual companies enjoy a low premium for the same coverage.

  • Savings
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Another advantage here is the ability to save. Through the profits, the policyholders can get back more than they paid for their coverage. Either by collecting their profits after the investment or by using the low premium feature, they can still make more than they have paid.


Mutual companies sometimes run into financial problems. This happens when the company runs into a loss from an investment. Also, when the company can not pull up enough funds to serve the policyholders.

When this happens, the company is forced to sell and the policyholders will share the proceeds. Also, the company may decide to convert to a stock insurance company through demutualization.


Furthermore, this is the process a mutual insurance company morphs into a public stock insurance company. This process, however, does not only apply to mutual companies. Other companies that can go through demutualization are credit unions, saving and loans companies, and its likes.

Therefore, this is the process that turns a mutual policyholders company into a public shareholder company, legally.

So, during this process, the mutual company auctions out stocks to potential stockholders. Now, the previous members may or may not get these stocks. However, it depends on the type of demutualization that went on in the company. And as it stands, the demutualization process occurs in different ways. Sponsored demutualization and full demutualization.

Sponsored Demutualization

In this method, the mutual company declares an initial Public Offering (IPO). This is where the company begins to auction out stocks to interested shareholders.

So, after the auction, the original members of the company get shares automatically into the newly formed stock company. This makes them shareholders in the new company.

Moreover, these people can go-ahead to use their personal funds to buy more stocks from the company.

By the way, the company also transforms into a public stock company and bought over by a single company.

Full Demutualization

For this method, the company first, transforms into a public shareholder company which can also be called a stock company.

Secondly, the original policyholders get compensations in form of cash rewards, common stocks, or policy credits. So, after declaring the Initial Policy Offering, the former policyholders get a compensation reward because they were once the mutual owners.

The company gifts the former policyholders the stocks. Privately, they can buy more stocks individually. That is if they wish.

Companies that underwent demutualization

  • Sun Life Assurance Company
  • MasterCard
  • Prudential Insurance Company
  • Visa

Mutual Insurance Companies in the United States of America

Some of the top mutual insurance companies include

  • Liberty Mutual
  • Acuity Insurance
  • Nationwide Mutual Insurance Company
  • Navy Mutual
  • Penn Mutual
  • State Farm
  • American Family Insurance
  • Ameritas
  • Auto-Owners Insurance
  • MassMutual
  • Medical Mutual of Ohio
  • Mutual Savings Life
  • Mutual of America
  • State Mutual Insurance Company
  • Western Mutual Insurance Group
  • Connecticut Mutual Life Insurance
  • COUNTRY Financial
  • Guardian Life
  • Farmers Mutual Hail Insurance Company of Iowa
  • Massachusetts Mutual Life Insurance Company
  • Grange Mutual Casualty Company
  • Grinnell Mutual
  • Amica Mutual Insurance Company
  • Commonwealth Mutual Insurance Company of Mutual

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