Mutuality as a control for information asymmetry: A historical analysis of the claims experience of mutual and stock fire insurance companies in Sweden, 1889 to 1939

We test two competing arguments regarding the influence of organisational form on underwriting performance using data from the Swedish fire insurance industry for the years 1889 to 1939 -- a period of both economic growth and stagnation. Since mutuality is a response to information asymmetry problems, mutual insurers are expected to report lower annual claims relative to premiums than stock insurance companies. However, an alternative view is that stock insurers seek to reduce information asymmetry problems by issuing non-participatory rights insurance contracts with high deductibles that induce risk-sharing between the insurer's shareholders and policyholders. This implies that stock insurers are likely to report lower annual claims than mutual insurers. Our results show that organisational form is an important determinant of the claims experience of Swedish fire insurers, suggesting that mutuality acts as an effective control for information asymmetries in the market.