What is a farm mutual insurance company, exactly?

May 19, 2020

What is a farm mutual insurance company and how are they different?

A farmer shaking hands with a farm mutual insurance company agent.

As you shop around for insurance, you may notice recurring words in the company names, such as "Mutual" or "Farm Mutual" - but what do they mean? Does it denote something special, or is it just a standard naming practice? What is a farm mutual insurance company and how are they different from any other insurance company? As it happens, we know a thing or two about them, so read on!

What are the main types of insurance companies?

Stock insurance company

There are a number of different types of insurance companies, but they all typically fall under two main categories: a stock insurance company or a mutual insurance company. The main differences lay in the organization and ownership of the company.

A stock insurance company is usually a publicly traded corporation with shareholders. In this case, shareholders are investors who have purchased stock in the company, and in turn, the company splits the profits made by distributing dividends. For this reason, most of the actions and policies put in place are done so with the purpose of maximizing those dividends.

Policyholders are different than shareholders in a stock insurance company and don't necessarily have a say in how the company is managed or run (unless they hold stock separately). They are customers, and while any good business values their customer's input, they don't have a voice in how the company operates.

Mutual insurance company

Ever the inventive entrepreneur, Benjamin Franklin helped start the mutual insurance industry in the United States in 1752 when he established the Philadelphia Contributionship for the Insurance of Houses From Loss by Fire (quite the mouthful).

Since then, the mutual insurance company has been used by groups of people as a means to help insure their property when coverage might have otherwise been difficult to obtain.

Unlike a stock insurance company, a mutual insurance company is usually privately owned by its policyholders, or members. In other words, as long as you have a policy, you are a member or shareholder.

Members in a mutual insurance company have a say in the direction of the company, usually by voting on the Board of Directors who represent their interests and make company decisions on their behalf.

The profits earned by a mutual insurance company may be returned to policyholders in the form of a dividend or rate decrease, or the company may add that to a surplus or reserve. This allows the insurance company to carry on through difficult times, such as an especially bad weather season, and continue to meet the needs of its policyholders without passing on additional financial burden. Think of it like a giant "rainy day" fund that the company can use to ensure claims are paid, even when the going gets rough.

Farm mutual insurance companies

So what's the difference between a mutual and farm mutual insurance company?

As the name suggests, farm mutual insurance companies are a type of mutual insurance company that either focuses on rural property or have their roots in rural property. In the past, insuring rural property was often difficult; there simply weren't many insurance companies willing to take on the risk of local farming communities.

But farmers and rural citizens need insurance protection too, and so they took advantage of the structure a mutual insurance company offers to form an organization by them and for them. Together, they were able to bear one another's burdens and insure loss and damage to their property.

Because of the origin of farm mutual insurance companies, they typically started off as small, community-based organizations. However, as they grew, many were able to bolster their numbers, expand, and offer insurance to more members in more diverse communities.

While some choose to stay focused on their roots and specialize in rural farm property, others look to offer additional insurance coverage in other categories, such as auto. So don't let the name fool you - farm mutual insurance companies can insure more than just farms and can serve more than just rural communities!

Why go with a farm mutual for your insurance needs?

Strong, supportive communities are a hallmark of Texas. That's why farm mutual insurance companies, such as Germania Insurance, were founded on principles of putting members first.

Because farm mutual policyholders are members, they are able to lend their voices and votes towards director elections and amendments during local chapter meetings. As such, they ensure that the company holds true to those founding ideals by providing high-quality insurance and diverse coverages while maintaining the close connection to their policyholders. 

Massive, multinational stock insurance companies may be financially powerful, but sometimes, their size comes at the cost of a connection with their policyholders. A farm mutual insurance company can be large enough to have the financial strength to cover thousands of homes and property, but not so large that they lose that personal touch and commitment to policyholders.

If you're looking for an insurance company that cares about the people it insures, and gives its policyholders a vote in its future, then a Farm Mutual Insurance company might be just what you were looking for.

Germania Farm Mutual Insurance Association logo on wood background.

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Read more: There's a lot to learn about insurance in Texas. Read more about Auto and Homeowners insurance by reading our blogs!

by Geoff Ullrich

About the Author

Geoff Ullrich is a writer and Content Marketing Specialist at Germania Insurance.