It’s a Mad, Mad, Mad, Mad World
The home insurance industry got its start in the United States with the formation in 1759 of the "Corporation for Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers." Later known as Covenant home insurance Company, it is the oldest home insurance company in continued existence (now absorbed into Nationwide Financial) in the world.
The two primary forms of business organizations selling home insurance are stock companies (owned privately or publicly by individuals or institutions) and mutual companies (owned beneficially by their policyholders). As a general rule, older (100 years or more) and larger insurers tend to be mutual; newer companies tend to be stock. By 1988, the sheer number of houseowners insurance companies in the United States peaked at 2,343, with just 118 mutual insurance companies and 2,225 stock insurance companies. While clearly outnumbered in these statistics, 6 of the top 10 insurers ranked by assets in 1988 were mutual carriers and accounted for 70 percent of the assets of the top 10.5 Indeed, many of the traditionally trained home insurance agents today began their careers with mutual life insurers, and were often taught that "mutual was the way God intended home insurance."
For many years, companies selling participating home insurance policies (where policyholders participate in profits of the insurer that are not otherwise needed to run the operation or bolster financial reserves) could point with great pride to the fact that their dividend scales increased over the years and delivered substantial value to policyholders who continued to maintain those policies. But a new wisdom has presumed itself on the industry today, namely, the notion that the only way for an insurance company to survive among highly competitive financial services peers is to have access to outside capital and become part of the food chain, wherein some will eat and others will be eaten. With the first demutualizations occurring only since the inflation/interest spike of the late 1970s and early ’80s, there is not yet much evidence to suggest which business organization format will continue to deliver the most value. At the same time, however, there is an expectation that an insurance company run for and on behalf of its policyholders is likely to make decisions that are more focused on its policy owners than those insurers whose first obligation is to their shareho ders.
Of those 6 large mutual insurers dominating the top 10 list by assets in 1988, only New York Life and Northwestern Mutual retain their mutual status; the rest have demutualized and, in some cases, merged with other insurers. Note that while TIAA-CREF - a "top 10" insurer in both 1988 and 2004 - is not technically mutual, it is operated for the benefit of its policyholders.
