Guardian Disability Insurance Brokerage

Mutual vs. Stock Life Insurance Companies
Why It Matters!
by William Olmsted

There are two types of insurance companies providing life and disability insurance to their clients. Stock insurance companies have financial pressures that are shorter term than their mutual counterparts. Mutual insurance companies, on the other hand, have the longer term focus of their policyholders as their priority. When you’re shopping for a life or disability insurance policy, it is important to understand the difference, and how it relates to the financial strength* of the carrier you’re considering.

Many insurance companies have demutualized in the recent past, and are now owned by their shareholders, not their policy owners. When a company demutualizes, it transfers ownership from it’s policy owners to it’s stockholders. Since anyone can buy stock of a publicly traded company, these stockholders may or may not own a life or disability insurance policy from the insurance company. This can set up an interesting dynamic for the long term philosophy of the company.

Stock insurance companies are subject to pressure on a quarterly basis from Wall Street. When the stock price is down, there is pressure from investors. This can cause the company to be short-term focused on the quarter to quarter investments of the company. This may or may not be in the best interest of a policy owner who needs their policy, and insurance company, to be there for them in 50 years.

Mutual insurance companies are owned by their policy holders. They don’t sell shares of stock on any exchange, and aren’t subject to the short term demands of Wall Street. Instead, they can take a much longer focus on providing sound and conservative investment philosophy for the benefit of the policy holders who need a promise kept far in the future.

“Mutuality owned rivals [of stock companies] haven’t asked for a dime [of the $700 billion Wall Street bailout money]. Their statutory surpluses (the regulatory counterpart to book value) have held steady or even increased.”