Difference Between Mutual & Reciprocal Insurance

by Kimberly Parent; Updated September 26, 2017
Insurance advisor talking with customer in office

Insurance companies can be structured in many different ways to mitigate the cost of policyholders’ claims in a way that allows for company profit. Mutual and Reciprocal companies are owned by their policyholders and use their profits to the policyholders’ advantage.

The Facts

There are three major types of insurance companies: stock, mutual, and reciprocal. While policyholders own reciprocal and mutual companies, stock insurance companies are owned by investors seeking a profit.


Reciprocals can be comprised of individuals or organizations, and their main goal is to reduce the overall insurance costs. Stock insurance companies, and some mutual insurance companies, need to pay overheads for their staff members and want to cut benefits and costs to make profits for investors and policyholders. Operating profits from reciprocals are retained for future liabilities and expansion.

Mutual Insurance Organization

Mutual insurance companies are incorporated, have a staff that runs the business, and can function as either a non-profit or for profit company. The policyholders of mutual insurance companies have all the rights of investors, including voting for the board of directors and receiving dividends.

Reciprocal Insurance Organization

Reciprocal insurance companies are structured so that policyholders (often called subscribers) insure each other and agree to share each subscriber’s risk. Subscribers hire a third party attorney-in-fact who is responsible for the daily operations of insurance payouts and related operations. The subscribers also appoint an advisory committee that functions like a board of directors.


In general the company, not the policyholders, is responsible for the losses and liabilities that exceed the pool of resources. However, this depends on the agreement.

About the Author

Kimberly Parent is a writer living in Washington, D.C. She has experience in development, corporate social responsibility (CSR), editing at a computer-science publication and writing for an insurance news magazine. Parent holds a B.A. in French language and English literature with an emphasis in nonfiction writing. She is currently learning Arabic.

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