Volume 73, Number 3

June 1998

No Longer Your Piece of the Rock: The Silent Reorganization of Mutual Life Insurance Firms

Gregory N. Racz

Ever since Ben Franklin started a mutual insurance company, policyholders generally have enjoyed a basic level of ownership rights. Within the past few years, however, and with little debate, many states have passed mutual holding company laws. The new laws make it easier for mutuals to convert to stock companies and sell stock to the public, but in the process they radically alter policyholders’ rights. Industry proponents praise the new laws as tickets to financial strength. Critics demonize the laws as a corporate shell game that will strip policyholders of long-standing protections and work a wealth transfer from policyholders to managers. Some opponents of the new laws even argue that the laws may be unconstitutional. Despite these concerns, more and more states are bowing to industry lobbying and are considering passing such laws.