A mutual insurance company is owned by its policyholders and operates on a cost basis. In other words, any profit or surplus is distributed to policyholder owners rather than shareholders.
In contrast, publicly held insurance companies are owned by shareholders. Profits can be retained by the company in which case it is shareholder property, or they can be distributed to shareholders in the form of dividends. In either case, a shareholder-owned company seeks to maximize profits and serve the interests of its primary constituency which consists of shareholders.
There are certain benefits to mutual insurers that should be considered—particularly when long-term, multi-decade commitments are involved. The management of a mutual insurer will be primarily focused on serving the interests of its policyholder owners.
As a result, there is a tendency for mutual insurers to have a long-term, policyholder orientation rather than a short-term, shareholder orientation. As they say, it is difficult to serve two masters.
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