Organizational form and agency conflicts in the insurance industry: mutual versus stock insurers

The insurance market worldwide is dominated by two main organizational forms, being stock and mutual insurance organizations. In the stock form, the owner, manager and customer (or policyholder) roles are separated, while in the mutual form the ownership rights and the rights to claim potential profits are linked to the policy contracts of customers of the firm. In other words, the policyholders are also the owners of the insurer (i.e., the ownership and policyholder roles are combined), which has distinctive implications for the agency costs and other corporate behavioral aspects within mutual insurers. As the policyholders in mutual insurers are also the owners, the owner-policyholder conflict is largely controlled for, however, this comes at the expense of a worsened owner-manager conflict. This dissertation studies the impact of these differences in agency conflicts between both organizational forms on the financial soundness of insurers and their corporate behavior (in terms of cash holdings). Several business and cultural dimensions are used to interact with these relationships to provide novel insights into the (dis)advantages of mutual insurance organizations. Overall, the results show that mutual insurance organizations are more financially sound, but the difference is strongly dependent on the business environment they operate in, increasing in environments with more long-tail insurance contracts, but decreasing in environments associated with more managerial discretion. Furthermore, the differences in financial soundness are largely driven by the managerial risk-taking channel (rather than the policyholder moral hazard channel) and appear to be influenced by the cultural environment insurers operate in. Finally, the results show that the differences in cash holdings between mutual and stock insurance organizations appear to be mainly driven by precautionary motives (i.e., policyholder moral hazard).