All insurance companies in the 50 States of the United States are subject to the General Corporation and Insurance laws of the States in which they are authorized to operate. With limited exceptions, all companies writing property are regulated under Department of Insurance casualty, life and marine insurance regulations, according to the local State needs.

Unlike a stock company, a mutual insurance company is a corporation owned and operated by its policyholders. It is a form of insurance whereby each insured person, by payment of a specified amount into a common fund, engages collectively with other insured persons in indemnifying all others against loss. An insured person is entitled to attend policyholders'mee tings and to vote on all questions that arise including the election of members of the company's board of directors.

The first successful mutual insurance company in the USA was a fire insurance company organized in Philadelphia, Pennsylvania, in 1752. It continues in operation to this day as an exceptionally strong institution. At that time insurance premiums were paid by insured persons in the form of periodic assessments, calculated to cover the actual amount of losses and expenses incurred by the company. Some of the small mutual companies continue to operate today on the assessment basis. Most mutual companies in the country, however, now charge a fixed premium, usually payable in advance. Rates are classified by type of structure, construction, protection and occupancy, or use. Each mutual insurance company is authorized, under a charter issued by the State in which it is domiciled, to provide insurance against various and specific hazards as set out in the company's articles of incorporation. Mutual life insurance companies are limited to classes of cover they can underwrite, namely, life, medical and hospital insurance. They cannot issue policies covering property (National Association of Independent Insurers 1993).

Likewise, mutual property and casualty insurance companies cannot issue life insurance policies, but are specifically limited by their articles to underwriting insurance against damage from such perils as fire, lightning, wind, hail, etc. Additional perils insured against are explosion, riot or civil commotion, aircraft, vehicles, vandalism or malicious mischief, theft and numerous extensions of such basic coverage.

As a mutual insurance company improves its financial position, it may gain the authorization to underwrite additional lines of insurance. Many of these companies have now become ‘multiple line'writers , although there are still ‘speciality'compani es underwriting insurance against such single hazards as hail damage, growing crops or damage to property caused solely by hurricanes, tornadoes, cyclones, windstorms or hail.

Regulation by a State Department of Insurance can be extensive. Insurance departments approve rates, forms and policy wordings that are filed by each company. They license agents and supervise their activities; they supervise mandatory deposits of assets by companies operating within the State's boundaries, holding such deposits as a protection for the policyholders in the State. Each department maintains a staff of qualified accountants who periodically examine all records of companies doing business in its jurisdiction. The laws governing insurance company operations are established by the legislature of each State and are administered by the Insurance Department. Although this procedure may result in variations from State to State, little difficulty is experienced by the companies.

Almost all mutual insurance companies are required to file an annual statement each year-end with the Department of Insurance in each State where they are authorized to issue policies. Whilst certain small companies submit simple forms containing limited information, most insurance companies, mutual and stock, are required to file an annual statement form designed and approved by the National Association of Insurance Commissioners (NAIC), which is made up of each State's Commissioner of Insurance. The NAIC is a powerful organization that strives for uniformity in regulatory decisions and forms, as well as in laws governing the insurance industry in the United States. The ‘convention form'an nual statement is a complex 55-page document requiring detailed information relative to a company's premium income, losses, expenses, investments, reserves and assets during the year for which it is filed. The annual statement is useful in determining the success or failure of a company and its financial condition and forms the basis for the periodically scheduled examinations conducted by the Insurance Departments.

Currently the United States government does little in the way of regulating the insurance industry. Instead, federal guidelines governing many areas of the insurance business have been established. It is ordinarily up to the various State governments to follow these guidelines. In order to maintain State control and regulation of insurance, each legislature establishes procedures in accordance with federal directives (National Association of Insurance Commissioners 1992). Feeling that its insurance is unable to provide adequate facilities, the federal government does not offer insurance cover in catastrophic areas such as flood, crime, all risk damage to crops, medical protection for the aged or life insurance for members of the armed services. In addition, all insurance companies are subject to the rules and regulations of the Internal Revenue Service, which has certain specific procedures applicable to the payment of federal income by mutual insurance companies.

The ‘farm mutual'compri ses an important segment of the mutual insurance industry in the United States today. These companies were organized by groups of farmers striving to protect themselves in their rural environment, mostly during the latter part of the nineteenth century. Such companies usually operate in the limited area of a political sub-division, such as a township (36 square miles). They originally provided insurance to farm dwellings and out-buildings, rural churches and meeting halls and, later on to chattels against only two hazards: fire and lightning. In many States insurance departments did not regulate such companies under federal corporate laws, but received authority under the corporate laws of that State. They operated strictly upon an assessment basis with the number and amount of assessments being limited only by the amount of loss suffered by company members. Many farm mutuals still operate on this basis. Thus limitations have been established, and they continue to insure only against the hazards of fire, lightning and offer limited extended coverage. These companies, through arrangements with larger mutuals underwriting windstorm and hail, third party liability and other extensions, are able to continue serving their rural policyholders.

Over the years, however, other mutual companies, once classified as farm mutuals and providing insurance in rural areas only, have grown and now underwrite most property and casualty lines. The insurance laws of many States are still quite limited in regard to regulation of small, rural underwriters. As a given mutual company's assets increased it became necessary for it to operate under a different chapter of the insurance law and then submit to departmental regulation.

All mutual insurance companies operating in the United States, with some definitive exceptions, produce business under the system of independent agents or ‘captive'agents. The exceptions are:

1 direct underwriters that sell insurance through their employees direct to the public and not, therefore, through independent agents or brokers;

2 those farm mutual companies that depend upon the members of their boards of directors for the production and service of the business; and

3 in those cases where the manager underwrites all the policies for the company.

As the various States enact laws requiring licensing of agents, however, these exceptions become fewer and fewer, resulting in more knowledgeable professional agents.

As the needs of the insuring public become greater it becomes more difficult for the smaller mutual insurance company to provide the necessary coverage. In some areas the powers of the regulatory agencies, the insurance departments, have waned, but in other areas of the business they are more extensive. Through mergers, re-insurance and assurance of combination policies, mutual insurance has maintained a strong position in the United States. Currently there are approximately 1,800 mutual insurance companies operating in the United States, many of which are more than 100 years old.