An insurance company which is owned by its policyholders is called a:
All property/casualty insurers perform the same basic function: selling insurance policies to customers. However, some are organized as stock companies while others operate as mutual companies. There are key differences between the two types of organizations. Each has advantages and disadvantages for insurance buyers. Show Key Takeaways
OwnershipThe main difference between a stock insurer and a mutual insurer is the form of ownership. A stock insurance company is owned by its shareholders. It may be privately held or publicly traded and a stock insurer distributes profits to shareholders in the form of dividends. NoteSometimes stock insurers utilize profits to pay off debt or reinvest them in the company. A mutual insurance company is owned by its policyholders. Surplus may be distributed to policyholders in the form of dividends or retained by the insurer in exchange for reductions in future premiums. Earnings and InvestmentsBoth stock and mutual insurance companies earn income by collecting premiums from policyholders. If the premiums an insurer collects exceed the money it pays out for losses and expenses, the insurer earns an underwriting profit. If losses and expenses exceed the premiums collected, the insurer sustains an underwriting loss. Stock and mutual companies also earn income from investments. However, their investing strategies often differ. Stock companies' primary mission is to earn profits for shareholders. Because they are subject to scrutiny by investors, stock companies tend to focus more than mutuals on short-term results. NoteStock insurers are also likely to invest in higher-yielding (and riskier) assets
while mutual companies are more likely to invest in conservative, low-yield assets. Mutual insurers' mission is to maintain capital to meet the needs of policyholders. Policyholders are generally less concerned about insurers' financial performance than investors of stock companies. Consequently, mutual insurers focus on long-term results. In addition to premiums and investments, stock companies have a third source of income: the proceeds of stock sales. When a stock insurer needs money, it can issue more shares of stock. A mutual insurer doesn't have this option since it is not owned by stockholders. If a mutual insurer needs money, it must borrow the funds or increase rates. ManagementPolicyholders of a stock company have no say in the company's management unless they are also investors. At a mutual insurer, policyholders are owners of the company, so they elect the company's board of directors. Policyholders may have some influence over the types of insurance products the company offers. They also receive dividends from company profits. Financial StabilityOne advantage of a stock insurer for policyholders is stability. Because a stock insurer has more options for raising funds, it may be better able than a mutual insurer to overcome financial difficulties. A major disadvantage of the mutual company organization is the firm's reliance on policy premiums as a source of income. NoteA mutual insurer that is unable to raise funds may be forced out of business or declared insolvent. If the company is sold, policyholders may receive a portion of the proceeds from the sale. A mutual insurer that is financially impaired can become a stock company through a process called demutualization. DemutualizationDemutualization is the process in which a mutual insurance company decides to become a stock insurer. NoteGenerally, a mutual insurer can demutualize only with the approval of policyholders, the firm's board of directors, and the state insurance regulator. Mutual companies have three basic options for converting to a stock company.
Is policyholders are shareholders of the company?A mutual insurance company is owned by its policyholders, while a stock insurance company is owned by its shareholders and can be either privately held or publicly traded. Policyholders of a stock company have no control over the company's management unless they are investors as well.
Who owns a mutual insurance company?In the simplest terms, it means the policyholders mutually own the company. When you purchase a policy from a mutual medical professional liability insurance company, you receive an ownership stake in that company, just as you do when you buy stock or invest in a mutual fund.
What is an insurance company called?An “insurer” refers to the company providing you with financial coverage in the case of unexpected, bad events covered on your renters insurance or homeowners policy.
Who is called insurer in insurance?The insurer is defined as the company that issues insurance policies, handles claims, and sells policies. Moreover, the insurer is responsible in providing financial coverage to their customer in the form of sum assured in case of occurrence of the event (stated in the policy).
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