What is a defining governance feature of a mutual insurance company?

• A. It is owned by stockholders
• B. Policyholders elect the board of directors
• C. It is financed by private foundations
• D. It distributes profits to stockholders

Answer: (B)

Policyholders elect the board of directors. In a mutual, the owners are the people who hold the policies, not outside investors. This gives policyowners real control over the company’s leadership and major decisions, because the board is chosen by them and has fiduciary duties to serve their interests. Since there are no stockholders, profits stay with the mutual to benefit policyowners—often through lower premiums, dividends, or enhanced policy features—rather than being paid out to investors. This contrasts with stock insurers, where ownership rests with stockholders who elect the board and receive profits.