Mutual Insurance


Insurance is a global industry, with $4.1T in premiums collected worldwide in 2007. The U.S. had 2,723 property casualty insurance companies in 2007, with $1.3T in cash and invested assets. The cash and invested assets of the 1,190 life and health insurance companies was more than twice that amount, at $3T. Many of these companies are part of larger entities, as banking and insurance services have combined within the financial services sector.


The first mutual insurance company was formed in England in 1696, offering fire insurance. Many of the early property casualty firms were formed by farmers who could not obtain insurance from large companies. They created mutual insurance companies within their local areas and could offer reasonable rates. These were informal associations until legislation passed in the 1870s enabled their formation. After this, the industry flourished nationwide in England.

The life insurance industry was almost nonexistent before the advent of the mutual model. The first mutual insurance companies were created in 1843 in England, and the number grew to 19 by 1849. Mutual life insurance companies were the fastest growing model until 1859, when states began approving regulations that required all insurance companies to conform to better practices, and increased the viability of stockholder-owned firms.

Organizational structure

Policyholders’ interest in a mutual insurance company comes from two sources. Policy holders are holders of an insurance policy that defines a set of rights, and they are also holders of a set of ownership interests. Their ownership interest arises from purchasing a policy and ends with termination of policy. This contrasts with many cooperatives, where ownership derives from purchase of a share of stock, and can continue during periods of non-use of the cooperative.

As with other cooperatives, ownership interests include governance and economic participation in the firm. Policy holders have the right to vote for the board of directors. State laws vary on voting rights and rights to vote on fundamental transactions (merger, dissolution, etc.). In most states, policy holders have rights to distribution of the assets on dissolution. In Minnesota and Wisconsin, these rights are limited, with some assets considered to be in the public interest. The board of directors has the right to decide on use of profit/surplus. The board may add to the surplus or distribute the surplus to members in the form of policy dividends (also called capital distributions). Policyholders can benefit from their economic participation in the firm in other ways, including premium reductions and premium credits.

Although the ownership model is similar, the evolution and benefits of mutual ownership for life insurance policyholders differs from that of property casualty customers. Life insurance customers have a contract with the company that may last several decades. They have a long-term interest in ensuring that decisions are not made at their expense. In stock-owned insurance companies, owners can potentially gain from changing the firm’s dividend and financing policies after insurance contracts are sold. When policyholders and owners are merged, in mutually owned firms, this conflict is eliminated.

Mutually owned property casualty insurance firms offer customers an opportunity to be rewarded for practices that lower their insurance claims. They are usually created in environments of market failure, by customers who cannot purchase insurance or are paying too much. Many successful firms focus on a particular industry, where risk management practices are shared. In a stockholder model, the benefits of better practices and lower claims would go to the owners. A mutually owned firm returns the benefits to the customers, through lower rates.

At the same time, there is a heightened opportunity for conflict between management and owners in mutual insurance companies, because many of monitoring devices used in stock-owned firms are unavailable (e.g., hostile takeovers, monitoring by stock analysts, and stock-based compensation programs).

Industry Niche

Mutual ownership has historically been an important model for insurance firms, particularly in life insurance and property casualty. The insurance industry underwent significant structural changes in the past 20 years, particularly after the passage of legislation in the 1990s that removed some of the barriers between insurance companies and banks. Although the number of conversions from mutual to stock ownership increased steadily from 1960–1990, the pace of demutualization increased in the 1990s. A significant number of mutual companies wanted to diversify their activities beyond insurance, and needed greater access to capital. Some converted completely to stock ownership. Others formed mutual holding companies that are owned by the policyholders of a converted mutual insurance firm.. The holding companies own one or more stockholder-owned insurance firms, and have the opportunity to own banking subsidiaries. Because the insurance industry is regulated, structural changes were made within a regulatory framework that requires at least advance disclosure and often regulatory approval.

Population Discovery and Data Sources

The list for mutual insurance comes from primary research. All economic data comes from survey work undertaken by the UWCC. The survey response rate for mutual insurance was 48%. We chose a sample of 265 firms with data from Guidestar, and all reporting cooperatives provided us with 2007 fiscal year-end data. Revenue and employment data for the top 15 mutual companies were supplemented from Avention and annual reports of the individual companies. The data collection and survey methodology is discussed in detail in the Data Collection section in the Appendix.

Economic Impacts

Table 4-4 summarizes our data for the mutual insurance sector. There is >$840B in assets, $140B in sales revenue, and nearly $2B in wages and benefits pay. There are approximately 233 million memberships and 122,000 employees. Adding direct and indirect impacts to this activity, we see from Table 4-4.3 shows that mutual insurers account for >$227B in revenue, >500,000 jobs, $27B in wages paid, and >$48B in valued-added income.

Table 4-4.3: Economic Impacts for Mutual Insurance Companies
Economic Impact Multiplier   Units Direct Indirect Induced Total
Revenues 1.209   million $ 187,343 17,273 21,956 226,571
Income 1.756     27,427 8,750 11,982 48,159
Wages 1.846     14,419 5,426 6,772 26,616
Employment 1.829   jobs 321,414 105,729 160,642 587,784
Figure 4-4.8: Distribution of Mutual Insurance Companies by County


Figure 4-4.9: Distribution of Top 15 Mutual Companies and Branches by County


Figure 4-4.10: Total Employment Top 15 Mutual Companies and Branches by County


Figure 4-4.11: Revenue Top 15 Mutual Companies and Branches by County