South Carolina Personal Lines Practice Exam

Which of the following is a characteristic of mutual insurers?

1. Pay dividends to stockholders

2. Owned by policyholders

3. Require high premiums

4. Operate without claim assessments

The correct answer is: Owned by policyholders

Mutual insurers are characterized by being owned by their policyholders. This ownership structure means that the policyholders are also the stakeholders in the insurer's operations, and they have a say in the decision-making processes, including voting on important matters such as the election of the board of directors. This arrangement often allows mutual insurers to focus on the needs and interests of their policyholders rather than generating profit for shareholders, which is the primary focus of stock insurers. The aspect of dividends mentioned in another option pertains to stock insurers, which distribute profits to shareholders. Premiums for mutual insurers can vary based on many factors, including the competition and claims history, but they do not inherently require high premiums merely because they are mutual. Claim assessments are not typically a feature of mutual insurers; they often operate on a pooled risk model rather than assessing claims against individual policyholders. Therefore, being owned by policyholders is what distinctly defines mutual insurers in the insurance landscape.