Are Mutual Insurance Companies Good for Policyholders?

A mutual insurance company is an insurance provider owned by its policyholders, not by shareholders. This means that the company puts its policyholders’ interests first right? Well maybe…

The Good

Mutual insurance companies are in fact owned by the policyholders. This can be a good thing. A mutual insurance company doesn’t face pressures from shareholders to squeeze out every last penny in profits from its customers. Additionally, if a mutual insurance company is very profitable, they will share some of those profits with the policyholders in the form of dividends.

The Bad

It’s nearly impossible for policyholders to effect any substantial change in the operations of a mutual insurance company.  Deirdre Fernandes and Todd Wallack had an excellent write up on this issue.  Institutional investors may own millions of shares(and voting rights) of public insurers making them impossible for company executives to ignore. Large shareholders can pressure public companies strongly on issues such as CEO compensation and corporate extravagances and additionally rally other shareholders to their side to force desired change. In the case of a mutual insurance company, it’s impossible for any individual to own millions of policies and therefore impossible for any individual to have a strong enough voice to influence change.

What does it mean for you?

You’ll have to weigh what’s most important to you. There are benefits and downsides to both public and mutual insurance companies. Still the most important factors in choosing an insurance carrier remain the company’s history, how their product serves you, and the company’s financial strength.