Tennessee Insurance Practice Exam

Who is responsible for electing the governing body of a mutual insurance company?

1. Board of Directors

2. Policyholders

3. State regulators

4. Shareholders

The correct answer is: Policyholders

The responsibility for electing the governing body of a mutual insurance company lies with the policyholders. In a mutual insurance company, the policyholders are essentially the owners of the company; they have the right to vote on important matters, including the election of the board of directors. This structure reflects the mutual nature of the company, where the focus is on the interests of the policyowners rather than external shareholders, as is the case in stock insurance companies. Since policyholders have a vested interest in the company's operations and direction, their involvement in electing the governing body is crucial for ensuring that their needs and preferences are represented in the management of the company.