Insurance Mutual - What is Insurance Mutual ?

Exclusive Summary about Insurance Mutual by Anonymous

It is quite common for insurance to be carried on a mutual basis. There is a mutual element in all insurance, in that most of the funds contributed by policyholders are returned to them as claims payments. One of the purest form of Insurance Mutual is found in the P & I Clubs (Protection and Indemnity Clubs), which consist of groups of ship owners who agree that they will meet each others losses from storm damage and other causes. Each year the members of the club contribute (in proportion to the size of their fleets) whatever amount is needed to meet the losses insured by the club. This is usually in the form of an initial contribution followed by later “calls” if these are found to be needed after the year end.

More familiar is the Insurance Mutual Company, the members of which will be its policyholders. If an Insurance Mutual company generates profits then it is the policyholders who are entitled to share in those profits. In practice this entitlement is unlikely to produce any visible benefit for the members of most mutual general insurers, as accumulated profits tend to be re- invested in the business, but this does not mean that the companies are not operating on a mutual basis. It is the entitlement to share in profits that matters, even if there are no actual distributions of profits for many years. On the other hand, the mere fact that a company has no shareholders (and may be referred to as “a mutual”) does not necessarily mean that it operates its business on a mutual basis.

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