Mutual vs. Stock Insurance Companies: What's the Difference? (2024)

Mutual vs. Stock Insurance Companies: An Overview

Insurance companies are classified as either stock or mutual depending on the ownership structure of the organization. There are also some exceptions, such as Blue Cross/Blue Shield and fraternal groups which have yet a different structure.

Still, stock and mutual companies are by far the most prevalent ways that insurance companies organize themselves.

Worldwide, there are more mutual insurance companies, butin the U.S., stock insurance companies outnumber mutual insurers.

When selecting an insurance company, you should consider several factors including:

  • Is the company stock or mutual?
  • What are the company’s ratings from independent agencies such as Moody’s, A.M. Best, or Fitch?
  • Is the company’s surplus growing, and does it have enough capital tobe competitive?
  • What is the company's premium persistency? (Thisis a measure of how many policyholders renew their coverage, which is anindication of customer satisfaction with the company’s service and products.)

Learn how stock and mutual insurance companies differ and which type to consider when purchasing a policy.

Key Takeaways

  • Insurance companies are most often organized as either a stock company or a mutual company.
  • In a mutual company, policyholders are co-owners of the firm and enjoy dividend income based on corporate profits.
  • In a stock company, outside shareholders are the co-owners of the firm and policyholders are not entitled to dividends.
  • Demutualization is the process whereby a mutual insurer becomes a stock company.
  • This is done to gain access to capital in order to expand more rapidly and increase profitability.

Stock Insurance Companies

A stock insurance company is a corporation owned by its stockholders or shareholders, and its objectiveis to make a profit for them. It can be a privately-held company or a public company. Policyholders do not share directly in the profits or losses of the company.

Corporate Requirements

To operate as a stock corporation, an insurer must have a certain minimum of capital and surplus on hand before receiving approval from state regulators. Other requirements (such as an exchange's listing requirements) must also be met if the company's shares are to be publicly traded.

Should it need capital for growth purposes or in cases of financial difficulty, a stock insurance company can raise it in the equity markets by selling additional shares.

Some well-known American stock insurers include Allstate, MetLife, and Prudential.

Mutual Insurance Companies

The idea of mutual insurance dates back to the 1600sin England. The first successful mutual insurance company in the U.S.—the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire—was founded in 1752 by Benjamin Franklin and is still in business today.

Mutual companies are often formed to meet an unfilled or unique need for insurance. They range in size from small local providers to national and international insurers.

Some mutual companies offer multiple lines of coverage including property and casualty, life, and health, while others focus on specialized markets. Five of the largest property and casualty insurers that make upabout 25% of the U.S. market are mutual insurance companies.

Ownership by Policyholders

A mutual insurance company is a corporation owned exclusively by the policyholders who are "contractual creditors" with a right to vote onthe board of directors. Generally, companies are managedand assets (insurance reserves, surplus, contingency funds, dividends)are held for the benefit and protection of the policyholders and their beneficiaries.

Management and the board of directors determine the amount of operating income that is paid out each year as a dividend to the policyholders. While not guaranteed, some companies have paid a dividend every year, even in difficult economic times.

Large mutual insurers in the U.S. include Northwestern Mutual, Guardian Life, Penn Mutual, and Mutual of Omaha.

The shares of the well-known global insurance company AIG (American International Group, Inc.) started trading on the NYSE in 1984. As a result of the 2008 financial crisis and due to questionable business practices, its longtime president Maurice Greenberg was forced out of the company by pressure from regulators.

Key Differences

Like stock companies, mutual companies have to abide by state insurance regulations and are covered by state guaranty funds in the event of insolvency.

Mutual Insurers Serve Policyholders, Not Shareholders

However, many people feel mutual insurers are a better choice since the company’s priority is to serve the policyholders who own the company.

With a mutual insurance company, they feel there is no conflict between the short-term financial demands of investors and the long-term interests of policyholders.

With a stock insurance company, shareholders can be prioritized over policyholders and short-term financial performance can become a focus.

Policyholder Voting Rights

While mutual insurance policyholders have the right tovote on the company’s management (while stock insurer policyholders do not), many don’t,and the average policyholder really doesn’t know what makes sense for the company. Mutual insurance company policyholders also have less influence than institutional investors, who can accumulate significant ownership in a company.

Sometimes pressure from investors can be a good thing, forcing management to justify expenses, make changes, and maintain a competitive position in the market.

The Boston Globe newspaper has run illuminating investigations questioning executive compensation and spending practices atMass Mutual and Liberty Mutual. It has shown the excesses that occur at mutual companies.

Ways to Raise Capital

Once established, a mutual insurance company raises capital by issuing debt or borrowing from policyholders.The debt mustbe repaid from operating profits.

Operating profits are also needed to help finance future growth, maintain a reserve against future liabilities, offset rates or premiums, and maintain industry ratings, among other needs.

Stock companies have more flexibility and greater access to capital. Theycan raise money by selling debt and issuing additional shares of stock.


Many mutual insurers, including MetLife and Prudential, have demutualized over the years. Demutualization is the process by which policyholders became stockholders and the company’s shares begin trading on a public stock exchange.

By becoming a stock company, insurers are able to unlock value and access capital. As a result, they can achieve more rapidgrowth by expanding their domestic and international markets.

What's a Disadvantage of a Mutual Insurance Company?

Perhaps the greatest is that it cannot raise money it may need in the equity markets, as stock insurers can. This can hamper growth through mergers and acquisitions.

What Power Do Policyholders at Stock Insurers Have?

Policyholders have little power because they cannot vote, as shareholders of stock insurance companies can. Because of their differently-perceived pecking orders, shareholders' interests (strong stock value and short-term financial performance) may take precedence over the interest of policyholders (a company's long-term financial health).

How Do You Decide Which Is Best, a Stock or Mutual Insurer?

In addition to understanding the differences between them and your rights as a policyholder at each, consider whether the products they offer meet your financial needs. Review which company has the customer service and costs that are right for you. Look at credit rating agencies' ratings. And given that you may expect and need future payouts, give careful thought to a company's history of financial performance and its outlook for long-term financial strength.

The Bottom Line

Investors are concerned with profits and dividends. Customers are concerned with cost, service, andcoverage. The perfect insurance company model would be one that could meet both sets of needs. Unfortunately, that company does not exist.

Some companies promote the benefits of owning a policy with a mutual insurer, and others focus on the cost of coverage and how you can save money. One possible way to deal with this dilemma is based on the kind of insurance you are buying.

Policiesthat renewannually, such as auto or homeowner’s insurance, areeasy to switch between companies if you become unhappy, so a stock insurance company may make sense for such coverage.

Forthe longer-term coverageof life, disability, or long-term care insurance,you may want to select a more service-oriented company, which most likely would be a mutual insurance company.

Mutual vs. Stock Insurance Companies: What's the Difference? (2024)


Mutual vs. Stock Insurance Companies: What's the Difference? ›

In a mutual company, policyholders are co-owners of the firm and enjoy dividend income based on corporate profits. In a stock company, outside shareholders are the co-owners of the firm and policyholders are not entitled to dividends. Demutualization is the process whereby a mutual insurer becomes a stock company.

What is the difference between mutual insurance and stock insurance? ›

The main difference between stock and mutual insurance companies is ownership. A stock insurer is a corporation owned by its shareholders. They're either publicly listed or privately held. On the other hand, mutual insurance companies are owned by the policyholders.

Why would you want to choose a mutual company over a stock company? ›

Mutual insurers are focused on long-term ways to satisfy their policyholders, who can influence the company's direction and product offerings, whereas stock companies focus on short-term ways to satisfy the stock market and make a profit for their investors.

Why is a mutual insurance company better? ›

“Mutual life insurers make decisions based on the long-term interests of their policyowners,” said Gentry. “That means they naturally have a customer focus — and it's not just lip service.” Publicly traded life insurers, on the other hand, tend to look for investment and performance that will support their stock price.

What is the difference between a mutual holding company and a stock holding company? ›

Mutual companies are owned entirely by Whole Life policyholders, who share profits in the form of a dividend. Stock insurers are owned by investors who hold shares of stock. Stock company profits (earned from policyholders) increase the value in their shares of stock or may be distributed via stock dividends.

Which is better mutual funds or stocks? ›

Mutual funds or stocks—which one offers more security? Mutual funds typically offer more security compared to individual stocks because they spread investments across various assets, reducing the impact of market fluctuations. However, the level of security depends on the specific mutual fund or stock chosen.

Is a stock safer than a mutual fund? ›

A mutual fund provides diversification through exposure to a multitude of stocks. The reason that owning shares in a mutual fund is recommended over owning a single stock is that an individual stock carries more risk than a mutual fund. This type of risk is known as unsystematic risk.

What does stock insurance cover? ›

Stock insurance can help protect you from business-damaging losses like fire, vandalism, and theft. Without stock insurance you could lose out on the sale of damaged or stolen items. Your business would also have to cover expenses to repair or replace inventory out of its own pocket.

Do mutual insurance companies pay dividends? ›

Dividends are most common among mutual insurers, as publicly-traded insurance companies often pay dividends to their shareholders instead of policyholders.

Who owns a stock insurance company? ›

A stock insurance company is a corporation owned by its stockholders or shareholders, and its objective is to make a profit for them. It can be a privately-held company or a public company. Policyholders do not share directly in the profits or losses of the company.

What are the disadvantages of a mutual company? ›

Potential for loss: Mutual funds are not FDIC insured and may lose principal and fluctuate in value. Cost: A mutual fund may incur sales charges either up-front or on the back end that are passed on to the investors. In addition, some mutual funds can have high management fees.

Who is the largest mutual insurance company? ›

Northwestern Mutual is the biggest life insurance company in the United States, with 10.71% of the market share, according to 2023 data from S&P Global Market Intelligence.

Who might receive dividends from a mutual insurer? ›

A mutual insurance company provides insurance coverage to its members and policyholders at or near cost. Any profits from premiums and investments are distributed to its members via dividends or a reduction in premiums.

What is the main difference between a stock insurance company and a mutual insurance company? ›

The main difference between the two types of companies is ownership structures—stock insurers are owned by shareholders while mutual insurers are owned by the policyholders. Mutual insurers are typically conservative investors, while stock insurers take more investing risks.

How do mutual insurance companies make money? ›

The main source of income for a mutual insurance company is the insurance premiums that policyholders pay for coverage. Due to the nature of the business, they are restricted in their ability to diversify income sources.

What are mutual insurance companies also called? ›

Mutual companies are sometimes referred to as participating companies because the policyowners participate in dividends. Demutualization is the process of converting a mutual insurance company to a stock insurance company.

Which is better investment insurance or mutual fund? ›

Life insurance generally offers lower returns than mutual funds but also carries less risk. Life insurance policies have specific features and add-ons that make them attractive to investors. These features include tax-free insurance benefits and tax-deferred growth dividends.

What is stock insurance? ›

It provides financial protection against losses or damages to inventory or stock, ensures business continuity, and mitigates risks. Stock insurance is an important investment for small businesses to safeguard their assets and maintain stability.

What is one main difference between a mutual insurance company and a stock insurance company what is this major contract? ›

Final answer: The major contrast between a mutual insurance company and a stock insurance company is ownership, with mutual insurance companies being owned by policyholders and stock insurance companies being owned by shareholders.

What is the meaning of mutual insurance? ›

A mutual insurance company is an insurer that provides collective self-insurance to its Members. It has no shareholders and is owned and controlled by its Members.


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