Hawaii Insurance License Practice Exam

Which insurance company is owned by its policyholders?

1. Stock insurers

2. Mutual insurers

3. Reciprocal insurers

4. Fraternal insurers

The correct answer is: Mutual insurers

The correct answer is that mutual insurers are owned by their policyholders. In a mutual insurance company, the policyholders are the members who participate in the company's operation and have a vested interest in its success. This structure allows them to share in the profits through dividends or reduced premiums, as the company operates primarily for the benefit of its policyholder members rather than external shareholders. Mutual insurers often focus on providing quality service and returning value to the policyholders rather than maximizing profits for investors. This mutual ownership structure fosters a sense of community among members, aligning their interests and promoting trust in the insurance products being offered. Other types of insurers, such as stock insurers, are owned by shareholders who invest in the company and expect a return on their investment, rather than having a direct stake in the insurance policies issued. Reciprocal and fraternal insurers also differ in their ownership structures and operational models, not being predominantly focused on policyholder ownership.