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What is a Stock Insurance Company?

By Jason C. Chavis
Updated May 16, 2024
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A stock insurance company is a publicly traded firm that works within the insurance industry. The company issues shares which can be purchased by the public to help raise capital for the company. This enables the stock insurance company to utilize the additional capital to enlarge the firm in a manner superior to a mutual insurance company.

The insurance company itself generally issues the shares in the form of common stock. This is a type of security that forms a corporate equity ownership that differs from preferred stock, which offers priority in dividend payments in the event of liquidation. Common stock provides stakeholders with voting rights. This enables individuals holding these stocks to influence the decisions of the insurance company as well as elect the board of directors. Certain companies even allow common stockholders to help establish corporate objectives and policy as well as approve the events involving a stock split.

Stock insurance companies pay their stakeholders in dividends and capital appreciation. When the company earns a profit or finds itself with a surplus, the money can either be reinvested into the company or paid to the shareholders, as dividends. In the same way, appreciation payments can be made to investors when a certain asset of the company gains value. This makes stock insurance companies a profitable venture in the field of investing.

The actual policyholders of the insurance company may also be stockholders, however, this is not necessary. Many policyholders find that while investing in a business such as an insurance company, it makes sense to purchase an insurance policy from said company. In this way, the individual is making an investment into his or her own stock portfolio. These funds can be said to ultimately be used as a possible policy payment for their own insurance claims.

The major advantage of a stock insurance company over a mutual insurance company is the fact that it works with the financial market to gain additional funds. Mutual insurance companies leverage the fact that the policyholders all pay into a large fund in which payments to customers can be made. The major challenge to this model is the lack of ability to improve its capital standing. Many companies that used this business model have moved to the stock model to retain market share. When moving to this business type, the stock insurance company is able to valuate its assets and issue public offerings to raise additional capital that will grow the company even further.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By anon356932 — On Nov 29, 2013

How do stock insurance companies make profits?

By JaneAir — On Jun 19, 2011

@KaBoom - I actually agree with you about health insurance companies. Most medical billers know health insurance companies will try anything to weasel out of paying a claim. In the end, it's the patient who suffers.

I don't really understand this. I read an article recently about how profits are up in the health insurance industry, so you would think they could afford to pay some of their legitimate claims.

People who work in commercial car insurance may want to help you and save you money but I don't think the same is true of the health insurance industry.

By indemnifyme — On Jun 17, 2011

@indemnifyme - You are right, insurance companies are essentially businesses. However, that doesn't mean the people who work at them don't care about helping people save money and making sure people have proper insurance.

I work for an insurance company and I take a lot of pride in my job. A lot of people who come to us for insurance quotes don't even know what liability is. I always take the time to make sure my customers know what they're buying and why they need it. I honestly feel like I help people every single day.

Doctors offices and hospitals are businesses too but I don't hear many people making a fuss about that!

By KaBoom — On Jun 16, 2011

This is an interesting reminder that insurance companies are in fact businesses. Despite all the commercials about affordable auto insurance and caring about people, insurance companies are out to make a profit. I think we would all do well to remember this in our dealings with all kind of insurance companies, especially health insurance companies.

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