What is the main characteristic of a mutual insurance company?

• A. Traded publicly
• B. Owned by policyholders
• C. Operates for profit
• D. Acts as a reinsurance company

Answer: (B)

A mutual insurance company is primarily characterized by its ownership structure, which is based on the concept of mutuality. In this model, the company is owned by its policyholders, meaning that the individuals who purchase insurance coverage also hold shares in the company. This structure allows policyholders to have a say in the management and operations of the company, often including the ability to vote on important matters, such as board elections and policy changes.

This characteristic distinguishes mutual insurance companies from other forms, such as stock insurance companies, which are publicly traded and owned by shareholders who may or may not be policyholders. Additionally, mutual insurance companies typically operate with the goal of serving the interests of their policyholders rather than generating profits for external investors. While they may achieve surplus funds that can be returned to policyholders in the form of dividends or reduced premiums, their primary focus remains on covering member needs rather than prioritizing profit margins.

In summary, the definition of mutual insurance companies revolves around their ownership by policyholders, enabling a cooperative approach to risk management and insurance services.