Here is a simplistic illustration that demonstrates the principles of a purely mutual insurance company.

Purely mutual companies operate on a non-profit philosophy. There are no payments of dividends to stockholders. Expenses consist of claims payments plus administration expenses to operate the company. There are only two sources of income for a purely mutual insurance company - policyholder premiums and investment income from the investment of surplus funds. The simple goal is to provide for the needs of the owning policyholders while ensuring the mutual remains financially stable.

Can you see how claims costs affect the amount of premium needed?

Can you see how changing the rate of flow of any of these four forces affects the water level?