South Carolina Insurance Practice Exam

What type of insurer is owned by its policy owners?

1. Stock

2. Mutual

3. Exchange

4. Reciprocal

The correct answer is: Mutual

A mutual insurer is owned by its policyholders, who share in the profits and losses of the insurance company. In this structure, policyholders typically have voting rights and can influence the management and direction of the company. This ownership aligns the interests of the insurer with those of its policyholders, as any profits generated are usually returned to policyholders in the form of dividends or reduced premiums. In contrast, stock insurers are owned by shareholders, who may not be policyholders, and their primary objective is to provide returns to investors rather than policyholders. Exchanges and reciprocals are types of insurers that involve groups of individuals or entities that pool their resources together for insurance coverage, but they do not operate under the same mutual ownership structure where policyholders have direct ownership and governance over the company.