Mutual attraction.

• Author: Beck, Bill
• Position: Impact of a legislative proposal to establish mutual insurance holding companies

Would Indiana's two largest mutual insurance companies "redomesticate" to other states if legislation fails again?

Mutual insurance companies have been writing life and property/casualty insurance in Indiana for well over a century now. Some of the proudest names in the Indiana insurance industry are mutuals, including American United Life, Indianapolis Life Insurance Co., Meridian Mutual and Indiana Lumbermens Mutual Insurance Co.

Mutual insurance companies are owned by the people they insure. Policyholders are paid dividends to offset their premiums, and there are no stockholders as such. The concept goes back more than two centuries ago to colonial America, where primitive mutual insurance companies were established to provide fire coverage for the residents of such communities as Boston and Philadelphia.

Indiana Lumbermens is an example of the typical mutual insurance company. Founded 100 years ago in Indianapolis, Lumbermens was established to make reasonably priced fire insurance available to lumberyards and wood-products dealers in Indiana and the Midwest. Today, the company has added property/casualty coverage to its policies, but little else has changed, including the core customer base.

"We still pay dividends to our policyholders," says Indiana Lumbermens' Greg Frazier. "We were formed on a partnership basis with our policyholders. And our partnerships are entirely with our individual policyholders and with group types of associations like the Indiana Lumber and Building Supply Association. We are very proud of that tradition."

But as times change, an increasing number of mutual insurance companies, both here in Indiana and across the nation, are actively investigating new ways of doing business. In an age of acquisitions, stock companies have a major advantage over mutual companies: Stock insurance companies find it much easier to raise money for expansion, growth and acquisitions through the simple expedient of selling stock.

These companies also are able to compensate executives through today's popular currency, stock options. This means higher paycheck for higher ranked professionals. Options helped make Steve Hilbert, head of insurer Conseco in Carmel, the second-best-paid executive in the country last year.

The advantages of stock are attractive to many mutuals, causing some to examine the possibilities of transforming to a stock-based company. Most mutuals thinking of changing structure are considering establishing "mutual...