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What Are the Benefits of a Mutual Insurance?

Mutual insurance companies are owned by the policyholders. The main purpose of a mutual insurance provider is to offer insurance coverage for members and for policyholders, and the members are given the right to select management. Federal law, not state law, determines if an insurer is classified as a mutual insurance company.

The purpose of today’s mutual insurance companies is to ensure the benefits promised to policyholders are paid over the long-term. Since they aren’t traded on stock exchanges, there’s no pressure to meet short-term targets.

Are you ready to learn more about mutual insurance companies? If so, keep reading. Here you can find more about the benefits of mutual insurance companies, and why they may be a smart option.

The History of Mutual Insurance Companies

The concept of mutual insurance began in the 17th century in England. The purpose was to cover losses caused by fire. It wasn’t introduced in the U.S. until 1752 when the Philadelphia Contributionship for the Insurance of Houses From Loss by Fire by Benjamin Franklin. Today, mutual insurance companies exist in every country in the world.

In the past two decades, the insurance industry has experienced significant changes, especially after the 1990s, when legislation removed some barriers present between banks and insurance companies. When this happened, the rate of demutualization started to increase as several mutual companies worked to diversify their operations beyond just insurance and gain access to more capital.

Some companies converted to stock ownership, while others chose to create mutual holding companies that were owned by policyholders. The holding companies have also gained the ability to own banking subsidiaries.

1. Ownership is Shared Among the Policyholders

As mentioned, one of the biggest benefits of a mutual insurance company, like Bear River Insurance in Utah is the shared ownership among the policyholders. You may wonder what this means for you. With a mutual insurance company, capital is returned directly to you as premium credits or dividends.

A stock company is owned by shareholders. Dividends go to the shareholders. The goal of stock companies is to help maximize stockholder value, which isn’t always consistent with policyholder interests. Also, policyholders have no rights for voting for board members. With mutual, it’s the policyholders that have these rights.

2. Unique Business Structure  

Thanks to the structure of the mutual insurance company, it can take a longer-term view on factors including investment, risk appetite, and strategy. Because of this, Mutual insurance companies aren’t worried about managing the stock price. What this means is that there is usually a higher percentage of invested assets in equities than the stock counterparts. While these are historically more volatile than fixed-income investments, they also help generate higher returns.

3. Specialization

At the beginning of mutual insurance companies, they were formed by groups of professionals or associations. What this means is that many focus on just one line of business. Because of this, they know this particular business very well. The knowledge of the area’s laws, case law, regulations, economic environment and other factors is a huge benefit for policyholders.

4. A Portion of the Earnings Go to the Policy Holders

While dividends aren’t guaranteed nor are they required by law, many mutual companies pass a portion of the company’s earnings to policyholders each year who have participating whole life policies. The policy dividend is a share of the company’s earnings after it’s put the funds needed for operating contingency, business expenses, and contractual obligations aside. So, Paying dividends is the way mutual insurance companies share a portion of the favorable results with the policyholders.

Mutual Insurance: Is it Right for You?

Mutual insurance offers an array of benefits, but it may not be the right option for everyone. It’s important to consider the business structure and advantages listed above to determine if it is right for you.

Ultimately, modern mutual companies are unique because they serve the insurance needs of a policyholder without having to meet the investment needs of stockholders. A policyholder, who is called a “member” is the focus of mutual insurance companies. This means mutual insurance company members have all the advantages that policyholders of non-mutual insurance companies have regarding policy rights, access to state guaranty funds, and productions given by state regulation.

Don’t underestimate the benefits offered by mutual insurance. For those who are shopping around, or interested in something different, this may be the solution.

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