The mutual insurance industry dates to 17th century England with the establishment of the first mutual fire insurer in 1696. In the United States, Benjamin Franklin helped establish the first successful mutual in Philadelphia in 1752. Mutual companies today range in size from local companies operating in a single county to large carriers doing business nationally and/or internationally. Most mutuals sell a wide variety of insurance coverages, including policies for auto, home, farm, and business, while others focus on niche markets.
A mutual insurance company is simply one whose interests are aligned with its policyholders rather than stockholders – membership is mutually shared among those who purchase the company’s products. In most cases, management of a mutual company is directed by a board of directors (often some of whom are policyholders of the company), who select a president and chief executive officer to oversee day-to-day operations of the company.
While the mutual model precludes the company from raising capital through sale of stock, it also frees the company from the often short-term concerns of stockholders. Decisions regarding costs, investments, growth, and policy terms are always made in such a way as to strengthen the company’s ability to meet its financial obligations to its members – any financial surplus can be invested in the company (more staff, newer technology, expansion to new markets, etc.), rather than having it paid out to the company’s stockholders in the form of dividends.
Capital to pay claims or provide surplus for mutual companies is built up over decades of profitable operation and investments. Profits in a mutual are often retained, in whole or in part, to finance future growth, provide a cushion against future liabilities, adjust rates or premiums, and bolster industry ratings.
Should a mutual company ever cease operations, the policyholders would share in a distribution of any net assets or surplus.
Ohio Mutual Insurance Group was founded more than a century ago on a cooperative structure, in which farmers organized to share the risk and cost of wind damage to their individual farms. Under this structure, business decisions are always made to the ultimate benefit of the policyholders – not stockholders.
The management and members of Ohio Mutual Insurance Group believe that the mutual insurance model keeps the focus where it needs to be: on the interests of the policyholders.