Mutual insurance and federal insurance refer to two different models of insurance. While federal insurance companies don’t exist in South Africa, we do have government contributed insurance funds such as the Road Accident Fund and the Unemployment Insurance Fund.
A mutual insurance company is a company owned by its policyholders. That is, traditionally private companies are owned by their shareholders who receive pidends based from that company proportionate to the amount of interest they have in the company. With a mutual insurance company, however, the policyholders are the shareholders. The policyholders are the ones who receive the rebates on the profits traditionally paid out to the shareholders of a company.
Unlike a traditional cooperative company, a mutual insurance company is based on the idea of mutuality. In a cooperative, pidends are paid out proportionately to the amount of capital the shareholder has invested in the business, whereas with a mutual insurance company, the policyholders don’t pay capital but receive pidends according to their customer relationship with the company. This gives customers the opportunity to own a part of the company they are supporting.
Federal insurance however, is insurance mandated by the government. This means it is a type of insurance that the government legally forces members or businesses to pay, which is often supplemented by the government. The Road Accident Fund (RAF) and UIF follow the model of federal insurance in that even though inpiduals pay for the RAF in the fuel levy, it is supplemented by loans raised by the South African Revenue Service.
The Unemployment Insurance Fund also follows a federal insurance model in that even though employers contribute to the fund by paying a percentage of the employee’s salary to the fund, it is supplemented by the government.
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