The differences between mutual and stock insurance

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Most insurance companies can be classified into one of these two categories: mutual and stock. Some exceptions to these are fraternal organizations that offer the same service; examples are Blue Cross or Blue Shield. Across the world, mutual insurance companies are more common. However, in the U.S., there are more stock insurers than mutual ones.

The policies the two types of insurers do not differ that much. Their main difference lies in the form of ownership. In a stock insurance company, the owners are the shareholders, or stockholders if the organization is a publicly traded corporation.

On the other hand, a mutual insurance company is owned by the policyholders, who are also referred to as “contractual creditors.” They are afforded voting rights in the selection of the board of directors and management.

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Because of the difference in ownership forms, the two types of insurers also contrast in the distribution of earned income and profits from investments. Stock insurers have an objective making a profit for their shareholders, doling out dividends when the company has a positive cash flow.

For mutual insurers, the goal is to meet the financial expectations and serve the needs of the policyholders, who are generally more interested in long-term financial gains than short-term financial demands.

Delos Yancey is a Certified Financial Examiner, a Certified Insurance Examiner, and a fellow of the LIMRA Leadership Institute. He is also the chairman of State Mutual Insurance, a mutual insurance company that is run for the benefit of its policyholders. Check out this blog to learn more about the insurance industry.