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Mutual Insurance Company Definition & Overview

Updated: February 23, 2023

In the business world, it pays to be insured. 

There are a number of different types of business insurance coverage, as well as a number of different types of insurance companies. One of these types is a mutual insurance company. 

But what exactly is a mutual insurance company? Read on as we take you through the definition and show you how mutual insurance companies work.

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    • A mutual insurance company is an insurance company that is privately held and 100% owned by its policyholders. 
    • The main purpose of an MIC is to provide its members and policyholders with insurance coverage. 
    • An MIC works by making investments in portfolios – similar to a normal mutual fund.
    • Any profits that are made from these investments can either be returned to the members in the form of dividends or returned via a reduction in the premiums.

    What Is a Mutual Insurance Company?

    A mutual insurance company (MIC) is an insurance company that is privately held. One of the defining features of this form of insurance company is that it is entirely owned by its policyholders. 

    They are established with the purpose of providing insurance coverage. This insurance coverage is for its policyholders and its members. They also aimed to remove some of the barriers between insurance companies in the insurance industry. The aim is to provide this insurance near or at cost. These members are also given the right to select the management for the company. 

    In order to be classified as an MIC, you have to be determined as such by federal law. This is opposed to state law. 

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    How Do MICs Work?

    An MIC works by making investments in portfolios. This is done in a similar way that a normal mutual fund would operate. Any profits that are made from these investments can be returned in two ways. They are either returned to the members in the form of dividends or returned via a reduction in the premiums. 

    MICs aren’t traded on the stock exchange. That means that the strategy for their investments doesn’t have to reach short-term profit. This in turn means that they can invest in low-yield assets that have a safe level of risk management. 

    The flip side to not being publicly traded is that it can be difficult to determine the financial solvency of an MIC. It is also a more difficult task to calculate dividends

    Advantages of a Mutual Insurance Company

    There are a number of advantages of being part of a mutual insurance company. Here are some main pros:

    • The main goal of a mutual insurer is to maintain enough capital to meet the policyholder needs. The main goal of a stock insurer is to maximize profits. 
    • MICs are more focused on long-term growth and stability.
    • Any profits made by a mutual insurer can be exchanged for discounts on future premiums.
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    Disadvantages of a Mutual Insurance Company

    There are also disadvantages of a mutual insurance company. Here are some of the main cons: 

    • A mutual insurance company relies on its policy premiums as their main source of income. This means that if they’re unable to raise enough funds they could be put out of business. 
    • The stability aims of MICs mean that their assets are low-yielding.
    • Mutual insurers don’t have the option of issuing shares of stock to generate income. Instead they must take out loans or increase premium rates to raise capital.

    How to Start a Mutual Insurance Company?

    There are a number of steps to starting a mutual insurance company. They are as follows:

    • Identify a need: The first step should be to make a marketing plan that identifies a customer’s needs and why they will join the company. 
    • Design the product: You will then have to design the insurance products. These should be tailored to your prospective audience. 
    • Sort the legalities: Legal advice is an important part of establishing a mutual insurance company. This is because many different states and countries will have different regulations. 
    • Protecting the MIC: Reinsurance plays a vital role in protecting a mutual company. Sorting out insurance should be the next step.
    • Finance the MIC: Mutual insurance companies are owned by the policyholders. This means that you have to seek finance from other sources. 
    • Appoint a board: The policy holders of an MIC appoint the board of directors. They in turn then appoint the executives who are responsible for managing the company. 
    • Appoint a manager: The day-to-day admin work of an MIC is often outsourced to a mutual manager.


    MICs are a great way for larger companies to self-insure. This can be done in two ways. Either by combining different divisions with a number of separate budgets. Or by teaming up with similar companies in the same industry.

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    FAQs on MICs

    What Is an Example of an MIC?

    Examples of a large mutual insurance firm include Northwestern Mutual, Penn Mutual, Mutual of Omaha, and Guardian Life. These are all situated within the United States of America.

    How Does an MIC Make Money?

    An MIC makes money by making investments in portfolios.

    What Is the Major Difference Between a Stock Company and a Mutual Company?

    The main difference between the two companies is that mutual companies are held by policyholders. Whereas a stock company is held by outside shareholders. Also, policyholders aren’t entitled to dividends in a stock company.


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