South Dakota Crop Insurance Practice Exam

Which type of insurance company is owned and controlled by its policyholders?

1. Stock companies

2. Fraternal benefit societies

3. Mutual companies

4. Risk retention groups

The correct answer is: Mutual companies

The correct choice highlights that mutual companies are unique in their structure as they are owned and controlled by the individuals who hold insurance policies with them. This means that policyholders in mutual companies are not just customers; they are also members who have a say in the company’s decisions, including governance through voting rights. This structure allows for a focus on the interests of the policyholders rather than shareholders, which is often the primary concern in stock companies. In mutual companies, any profits generated can be returned to policyholders in the form of dividends or reduced premiums, which directly benefits the members. This model fosters a community-oriented approach to insurance, which can lead to more personalized services and tailored products for the policyholders. Options such as stock companies are owned by shareholders and prioritize the interests of those shareholders in their operations, while fraternal benefit societies often focus on providing benefits to members of a specific group, and risk retention groups are formed by members of a particular industry to handle their own insurance needs collectively. These structures differ fundamentally from the mutual model in terms of ownership and governance, emphasizing the distinct nature of mutual companies.