Newspaper article The Christian Science Monitor

Mutual Insurance Loophole

Newspaper article The Christian Science Monitor

Mutual Insurance Loophole

Article excerpt

Most of the 70 million Americans who have policies with mutual insurance companies probably don't realize they own the company.

That stake can easily be worth a few thousand dollars for an individual policyholder, perhaps millions for a firm with a group insurance policy.

The insurance industry, however, has for some years now sought ways to use that wealth for its own purposes. What's happened is that many mutual insurance companies have decided they can better compete in the rapidly changing financial industry by converting to stock companies - where the shareholders (not policyholders) own the company.

However, they would rather keep surplus capital built up over years when policyholder premiums exceed outlays. If mutuals follow the straightforward method of conversion, known as demutualization, they have to distribute surpluses to the owners as shares, cash, or extra insurance.

To avoid this, the industry has lobbied through 22 state legislatures laws permitting "mutual holding companies." Policyholders are denied fair benefits. But the mutual company executives can issue themselves stock options and higher pay. The system also enables them to avoid any hostile takeovers, a hazard for the bosses at other stock companies.

"Executive nirvana," says a critic.

But in some key states, such as New Jersey and New York, consumer advocates have managed to block mutual holding company legislation. …

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