How are Mutual Insurance Companies (Cooperatives) Formed?

A mutual insurance company sometimes obtains initial capital from would-be policyholders but usually obtains it by borrowing money from investors. If the company is successful, borrowed money is ultimately repaid from the insurer's operating profits. Additional operating profits may be retained to finance future growth and provide a cushion against future liabilities. Insurance company management can also decide to share profits with policyholders in the form of policyholder dividends.

Mutual insurance company policyholders generally are not responsible for losses that exceed the insurance company's resources. However, some mutual insurers, known as assessable mutuals, preserve the right to assess policyholders to obtain additional funds if that becomes necessary for the insurer to meet its obligations. Such assessments typically are limited to one additional annual premium payment.

Fun fact the first mutual insurance company in American was the Philadelphia Contributionship for the Insurance of Houses From Loss by Fire, in 1752, by Benjamin Franklin.

Each state has a bureau of insurance who must approv all insurance products before being sold to the residents of their state.

That's about all I know.

The first mutual insurance company was formed in England in 1696, offering fire insurance. Many of the early property casualty firms were formed by farmers who could not obtain insurance from large companies. They created mutual insurance companies within their local areas and could offer reasonable rates. These were informal associations until legislation passed in the 1870s enabled their formation. After this, the industry flourished nationwide in England.

Policyholders’ interest in a mutual insurance company comes from two sources. Policy holders are holders of an insurance policy that defines a set of rights, and they are also holders of a set of ownership interests. Their ownership interest arises from purchasing a policy and ends with termination of policy. This contrasts with many cooperatives, where ownership derives from purchase of a share of stock, and can continue during periods of non-use of the cooperative.

As with other cooperatives, ownership interests include governance and economic participation in the firm. Policy holders have the right to vote for the board of directors. State laws vary on voting rights and rights to vote on fundamental transactions (merger, dissolution, etc.). In most states, policy holders have rights to distribution of the assets on dissolution. In Minnesota and Wisconsin, these rights are limited, with some assets considered to be in the public interest. The board of directors has the right to decide on use of profit/surplus. The board may add to the surplus or distribute the surplus to members in the form of policy dividends (also called capital distributions). Policyholders can benefit from their economic participation in the firm in other ways, including premium reductions and premium credits.