Mutual insurance

A mutual insurance company is an insurance company which has no shareholders but instead is owned entirely by its policyholders. The primary form of financial business set up as a mutual company in the United States has been mutual insurance. Under this idea, what would have been profits are instead rebated to the clients in the form of dividend distributions or reduced future premiums. Amutual, mutual organization, or mutual society is an organization (which is often, but not always, a company or business) based on the principle of mutuality. Unlike a true cooperative, members usually do not contribute to the capital of the company by direct investment, but derive their right to profits and votes through their customer relationship. A mutual organization or society is often simply referred to as a mutual. This could be seen as a competitive advantage to such companies — the idea of owning a piece of the company could be more attractive to some potential clients than the idea of being a source of profits for investors. This ownership either extends to all its policyholders or is restricted to certain classes of policyholders. Ownership rights typically include voting rights, for instance in the election of the board of directors. In a mutual insurance company, any distributed surplus funds are paid entirely to policyholders, whereas in a proprietary or stock company (one with shareholders) a proportion of the surplus is paid to shareholders while the balance is held in reserve by the insurer.

The American mutual property/casualty insurance industry was founded in 1752 by Benjamin Franklin when he established the Philadelphia Contributionship for the Insurance of Houses From Loss by Fire, although the mutual concept actually originated in England almost 60 years before when the first mutual fire insurer was conceived. In nearly every country around the globe, there are mutual property/casualty insurance companies. The Association of European Cooperative and Mutual Insurers has argued that European mutual insurance companies promote active policyholder influence, are innovators of new products and services, and actively demonstrate social commitment.

After the global economic crisis in 2008, the mutual property/casualty insurance industry was one segment within the financial services sector that neither needed nor wanted a financial bailout. However, primarily because of news coverage of the role American International Group (AIG) played in the crisis, there were and still are some misconceptions about the role played by property/casualty insurance industry. News reports repeatedly and erroneously described the multinational corporation as an “insurance giant,” when in fact AIG was a holding company consisting of a diverse group of businesses – of which about 70 insurance companies were included.

The National Association of Mutual Insurance Companies (NAMIC) is the only U.S. trade association representing mutual property/casualty insurance companies. Since 1895, NAMIC has been serving its U.S. and Canadian members in areas of advocacy and education.

The global trade association for the industry, the International Cooperative and Mutual Insurance Federation, claims 216 members in 74 countries, in turn representing over 400 insurers.