What is a “mutual insurance company”?

A mutual insurance company is an organization that is owned and operated for the benefit of its policyholders. This ownership structure means that the profits generated by the mutual insurance company are shared among the policyholders, typically in the form of dividends or reduced premiums. Unlike stock insurance companies, which are owned by shareholders who may prioritize profits over policyholder benefits, mutual companies focus on serving the interests of their members.

In a mutual insurance company, all policyholders have a stake in the company, and important decisions are often made with the consensus of these members. This structure can lead to a strong commitment to customer service and a mission aligned with the protection and benefit of policyholders rather than external profit motives.

Other options refer to different types of insurance companies. For example, a corporation owned by shareholders typically follows a stock model, focusing on maximizing shareholder profits. An insurance provider focused on commercial clients indicates a specialization that doesn’t necessarily pertain to ownership structure. Lastly, a company that specializes in high-risk insurance does not define the ownership model either; it merely highlights the market segment they serve. Thus, the defining characteristic of a mutual insurance company revolves around its ownership by policyholders, confirming why the correct answer is that it is owned by its policyholders.