Introduction
There are two basic forms of organization and ownership for insurance companies: mutual insurance companies and stock based insurance companies. Stock based insurance companies are like any other insurance company which is owned by their share holders. Mutual insurance was first founded in England by Benjamin Franklin in England in1960 to insure the houses from the loss due to fire.
Features
A Mutual Insurance Company is a company which has no shareholders but is owned by their policyholders. The main type of financial business set up as a Mutual Insurance Company in United States of America has been mutual insurance. In this type of company, the profits are rebated to the clients in the form of dividend distribution.
The primary feature of a Mutual Insurance Company is the various ownership rights that are attached to the individual policy holders. For example, the policyholders have the power to choose the board of directors of the company. So, they are entitled to the total assets of the company if the company demutualizes. Moreover, in many instances, Mutual Insurance Company are able to keep their policy rates low than the other insurance company as in mutual insurance company they don’t have to wait for returns and profit from the policy holders.
The Advantages of Mutual insurance companies
- Stock Income- in some cases of conversion of mutual insurer to Mutual Insurance Company, the present policy holders get stocks that trades on major exchange. They do not receive stock during every conversion.
- Budget Flexibility- The mutual insurance company can sell their shares to other investors who may not ne the policyholders of the company. This allows the company to make additional extra money and thus removes the need to borrow money or sell more insurance policies so as to gain additional cash.
- Voting rights- Being the owners of a mutual insurance company, the rights of policyholders provides voting for the board of directors and also other major business decisions that may affect the company's future direction or structure.
- Surplus Funds- the mutual insurance company distribute a specific portion of their large fund to their policyholders. This helps them to benefit from the financial stability of the company. Policyholders also have the right to ensure that all funds are invested prudently and in their best interests.
Unlike stock companies they cannot merge to gain additional money when required.
List of some mutual insurance company:
- Hastings Mutual Insurance Company.
- CAMICO Mutual Insurance Company
- FM Global
- Guardian Life
- Union Central Life Insurance Company.
- Oil Casualty Insurance, Ltd.
- Oil Insurance Limited.
Conclusion
Mutual insurance company can be perfectly your choice to opt for or not. They have many advantages and a few disadvantages but they are worth investing in. So if you are planning for a long terms investment you can go for Mutual Insurance Company. Unlike stock companies they cannot merge to gain additional money when required. They give the policy holders the job to choose their board of directors, which is definitely better than the stock based companies.
