The insurance companies can be categorized into two which are the stock and mutual insurance companies.
What is the stock insurance company?
The stock insurance company is basically a business entity in which the entire corporation is solely owned by its shareholders, stakeholders. The main objective here is to earn maximum profit. Also in the stock insurance companies, the policyholders never share their profits or losses that they get from the company directly. Now there is certain requirement for those who want to work as stock corporations. For this the requirement is that the insurer has a minimum of capital and surplus with him on hand. This should be with them before they are going to receive an approval from the state regulators. Also if the shares of the company are traded publicly, then the insurer must make sure that they are also meeting the other requirements as well.
What is a mutual insurance company?
The idea do mutual insurance first came into existence during the initial years of the 1600 in England. These mutual insurance companies have the job of fulfilling the needs of an unfulfilled demand for the insurance. These may range form being some random local providers at small levels to national and international level insurers. Many of these mutual insurance companies are known to offer coverage of multiple lines which may include the aspects like life, health, casualties, poverty etc. While there are some other type of mutual insurance companies that focus more on the specialized markets. This is a corporation which entirely owned by the policyholders. These are those contractual creditors who have the right to vote on the board of directors. Normally here the companies are managed and for the protection of the policyholders and their beneficiaries, the assets are held for their benefits. These assets can be in the form of surplus, insurance reserves dividends, contingency funds etc. the amount of operating incomes that has to be paid each year depend on both the management and the board of directors.
What is the difference between the mutual and the stock insurance companies?
Now in both the stock companies and the mutual companies have to follow the state regulations which are covered by the state guaranty funds. There are some who felt that the mutual companies are better since their priority is to serve the policyholders. There is no conflict between the long term interest policyholders and the short term financial demands of the investors. But the reality is that policyholder does not have as much influence as the intuitional inventor does. Also it is good to get pressurized by the investors sometimes to that the expenses could be justified. This helps them in sustaining the competition in the market. Now once the mutual companies get established they raise capital by taking loan form policyholders. And with the profit, debt is repaid. But in cases of the stocks, things are more flexible. Here there is a comparatively greater access to the capital. By selling the debt or by issuing of the share of stocks, they are able to raise their money.
Thus there is quite a lot of difference between the two and they must not be confused to be similar.