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The Difference between Mutual and Stock Insurance Companies

April 29, 2016

Two types of company structures exist in the world of car insurance. There is mutual insurance and there is stock insurance. Each type has its own pros and cons as a type of business structure, but how does the corporate layout of an auto insurance company affect you, the consumer?

mutual insurance or stock insuranceHow Mutual Insurance Companies Work

A mutual insurance company is a sort of collective. It is essentially a car insurance company (or life, or property) owned by the customers who are paying the car insurance premiums. The company’s profits are redistributed to its members through dividends or through lower car insurance premiums.This is likely an appealing proposition to just about anyone, but be aware that mutual insurance companies are not without their share of cons as well. In this model, all policyholders (or customers) are stakeholders in the company.

The Alternative: Stock Insurance Companies

Stock insurance companies differ from mutual insurance companies in that they are owned by a (generally) smaller group of investors who own shares or “stock” in the company. These are the same shares, or stocks, that are traded on the stock market or stock exchange. In this model, investors purchase their shares and those shares either increase or decrease in value as the company’s profits rise. If the value rises, then the shareholders are paid a portion of the profits according to the number of shares they hold. This model is more common in the world of auto insurance. Policyholders in stock insurance companies do not necessarily have a stake in the company other than the fact that they rely on the company to provide them with insurance. Policyholders may purchase stock in the company if they so choose, but must purchase the stock independently and at market value.

Making a Choice between a Mutual or Stock Insurance Company

In the end the choice is yours. Personal preference is the major factor here as both mutual and stock insurance companies are equally sound and the corporate structure of the company is overall less important than a number of other features that ought to be considered when deciding on an auto insurance company. As always, when deciding which car insurance company to use make sure to do your research and compare companies as well as quotes.


Learn More About Auto Insurance

When it comes to auto insurance, there are a lot of variables, a lot of unfamiliar terms, and a whole lot of peculiarities – particularly when you consider that each state has its own insurance market. Our Auto Insurance Explainers can help sort it out for you, and make more educated decisions about your car insurance.

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