When it comes to insurance coverage, two big types of organizations dominate the industry – stock and mutual firms. However, if you’re not a market insider already, chances are a little insight is required in order to understand the comparison between these two types of companies. To help bring you up to speed, here’s everything you need to know about the structure of each organizational style and what it means to you as you search for the right insurance policy.
Stock Company Basics
Much like the name implies, a stock-based insurance company distributes shares of the company to private investors, signifying an exchange of capital for a vested stake in the brand. However, this doesn’t necessarily mean the company only functions as a private organization. As the Financial Web explains in its review of this type of insurance company, stock firms can enter publicly traded markets – creating an opportunity for significant funds generation.
However, that isn’t to say that stock-based insurance firms have no drawbacks. For insurance policyholders that wish to have an active role in the direction of the company, purchasing actual stock is the only way to gain voting rights on organizational decisions. Additionally, with mergers and takeovers often part of the open market process, changes in the coverage and particulars of insurance products aren’t unheard of when stock companies play a role in these events.
The Mutual Firm Difference
On the other hand, mutual insurance companies eschew private investors and base ownership solely on current policyholders. Because of this structure, mutual firms generally only enter the public trading market by switching to the stock-based approach embodied by stock insurance companies – a process known as demutualization.
By focusing on a private system that promotes policyholder activity, mutual insurance organizations maintain a reputation for charging higher premiums. However, this argument actually doesn’t reflect the true nature of the business. In a statistical study of the differences between mutual and stock-based firms, researchers at the University of St. Gallen’s Institute of Insurance Economics found that no empirical evidence exists linking this claim of significantly higher premiums to mutual organizations.
Which Type of Organization Is Better?
Now that you’re an expert on the two major types of insurance companies, it’s time to find the right coverage provider for your interests and needs. Considering the parity in pricing found by the Institute of Insurance Economics researchers, this decision hinges on two factors – your desire to be a part of the organization and your coverage needs.
For those looking to have an active voice in the direction of the company, becoming a policyholder with a mutual insurance provider creates easier access to the decision-making process when compared with buying shares of stock on an open exchange. However, if this firm doesn’t offer the coverage you need in the first place, having a say in the company’s movements and activities ends up being a moot point.
To make this process easier, get in touch with your insurance agent and spend a few minutes discussing your provider options. With this expert’s knowledge of the myriad mutual and stock-based firms currently flooding the market on your side, finding the right fit for your needs becomes a far more manageable affair.