Mutual Insurance Company

A Mutual Insurance Company is a type of insurance company that does not have shareholders but policyholders that owns it. The ownership of the company is based on either a limited class of policyholders or all the policyholders. This ownership may include rights on voting for the member of the board. Generally, the company’s decision relies on the members of the board policyholders. Originated in England of the 17th century, these companies were formed to provide help to most property owners against any damages and losses brought by fire in a way of sharing financial risk. With this model, the members of the mutual insurance company is obliged to pay premium in a certain pool out in which claims and the corresponding expenses were paid out. The first ever mutual insurance company was said to be in the American colonies at Charleston, South Carolina. The business stopped for a couple years later die to a fire that destroyed or around 300 houses. Another mutual insurance company was established by Benjamin Franklin in 1752 at Philadelphia that has continues to operate until today.

When the fire insurance in mutual insurance was established first in England, it did not only offer financial protection but also created a firefighting brigade protecting the property of its members to any fire damages which will be identified by a posted mark usually on the door frame of the property. These marks are described to be picture of clasped hands which evokes cooperation and the mutual support. When Franklin focused on the losses that the fire caused in Philadelphia, he separated the financial matters and the firefighting components that describe the mutual insurance companies established in England. He then focused on forming a volunteer brigade on firefighting to secure the all the property of the residents referred to as the Union Fire Company. It was later that year that he concluded that the losses and fires are closely related to them are unavoidable so then he established the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. The company then adopted the clasped hands mark creating the logo of a Jacob’s Chair.

An approximate count of over 400 companies all over the world operates and functions as mutual insurance companies. The operation is basically the same method as the one introduced in England. The only difference is that they do not protect the property of the members by fire brigades anymore. The different types of insurance policies provide a wider range more than the casualty insurance and basic fire calamities but then again premiums are available to pay for the claims made and the cost together with the surplus funds contributed by the policyholders in their designated schedule.

Some known mutual insurance companies like Japan’s Yamato Life Insurance Company, John Hancock and Metropolitan Life, United Kingdom’s Friends’ Provident and two companies of the United States chose to demutualize. Demutualization is the conversion of ownership structure such as changing mutual company to stock company. The main reason is to enhance flexibility of the company by raising more funds more than the premiums paid.