What You Should Know About Mutual Insurance
There are multiple types of insurance companies but a mutual insurance company is different in some ways. One should first understand the meaning of mutual insurance. Actually, in a mutual insurance company there are no shareholders rather it is owned by its policyholders. Now in this form of insurance, what would have been a profit for a company is distributed among clients or given to them by reducing their next premium. Thus, a mutual insurance is a setup between a client and the company so they both benefit. The first mutual insurance company was set up in United States in 1752 by Benjamin Franklin. But the concept of mutual insurance is older, and was conceived by a British even sixty years before that when he offered mutual insurance for houses that wree destroyed by fire. He was called it mutual fire insurer.
History
Nowadays almost all the countries world over have mutual insurance companies for property or casualty. It is taken as a social service too and shows the social commitment of the company holder. This was the only financial institute that was not affected by the economic crisis that took place globally. It did not need any financial aid to sale through the crisis.
Now, let us get to know some working details of the mutual insurance companies. Although these companies work by the funds provided by the policyholders but they are not bound to do business with others. The policyholders might be denied a share in the surplus amount or the profit until they have been with the company until an agreed upon period. This is called the policy of the company. Therefore, the profit will belong to the company and then according to the law or the policy of the company it will be distributed. The policyholders who have become the voting members after some time in turn make this policy or law. The policyholders thus need to become voting members to gain share in the profit.
Features
There are some advantages of mutual insurance. Some have listed below. As mutual insurers do not have any shareholders governing themed so they do not have to fear of a takeover. So, they can work peacefully for the betterment of its policyholders. These companies are not obligated to give their profits to share holders so they can provide good coverage offerings or can offer better rebates to the policyholders. The policyholders elect the members of mutual insurance companies or their managers so they try to safeguard the interests of the policyholders. The policyholders get the feeling of involvement and they can give their opinions or advice. They can also point out any malfunction.
We have understood the advantages of mutual insurance companies. We should now also consider some of the disadvantages of it. First of all these companies sometimes demutualize to rise funds and their shares are sometimes given to the policyholders and sometimes not. Secondly, the powers of policyholders are limited. But mutual insurance has more pros then cons.
