As opposed to a stock insurance company owned by shareholders, a mutual insurance company is completely owned by its policyholders. This ownership structure can apply either to all or certain types of policyholders. While a trend of recent times has been for such companies to demutualize and become public corporations, advantages remain for the mutual insurance company framework.
Voting Rights
As owners of a mutual insurance company, the rights of policyholders include voting for the board of directors and other major business decisions that affect the company's future direction or structure, such as a proposal to demutualize.
Surplus Funds
A mutual insurance company typically distributes a certain portion of surplus funds to policyholders. This enables them, as owners, to directly benefit from the long-term financial stability of the company. Policyholders also have an incentive to ensure that all funds, not just those distributed, are invested prudently and in their best interests.
Management Focus
Among the major pressures on executives of public companies is to produce growth in quarterly earnings to satisfy shareholder expectations. According to the Wharton School, "One contributor to the pressure to deliver in the short term is quarterly earnings reports—and real and perceived consequences that come from failure to meet targets and surpass estimates." Absent the pressure from outside shareholders, managements of mutual insurance companies can focus on the long-term health and stability of the organization.
References
Writer Bio
Robert Rimm graduated from the University of Pennsylvania and founded 88keys.com to provide education, writing and communications services for clients within the nonprofit, arts and education communities in the United States, Europe and Russia. His key interests include art and culture, social entrepreneurship, education, the environment and human rights. He is fluent in French and Russian, and is a widely published author.