On July 1, 1998, New Jersey Gov. Christine Todd Whitman signed a bill that would allow Prudential Insurance Company to reorganize from a mutual company -- nominally owned by policyholders -- into a public stock company.

The process, known as demutualization, will probably not commence until early 2000. But what does this complex process mean if you hold a policy from Prudential? Policyholders, who currently receive dividends based on the company's profits, will receive Prudential stock once the company goes public. Consumer advocates are happy that the plan offers something to policyholders, because the demutualization plans of other large life insurance companies have left policyholders holding nothing except their usual policies. But consumer advocates also express concern about loopholes in the law that's been passed in New Jersey.

Prudential officials say that they will be distributing 100 percent of the company's common stock -- at an estimated value of $20 billion -- to its nearly 11 million policyholders. But the actual law passed does not specify how the company will divide up its stock among policyholders. Other loopholes could allow directors and managers to get stock or stock options, thus limiting the amount that policyholders will receive.

Two other segments of the law are also cause for worry, warn consumer advocates: the public hearing process and confidentiality provisions.

New Jersey law generally provides for full public hearings of such cases, with the opportunity for questions and cross-examinations. But the "legislative hearing" provided in the case of the Prudential demutualization will have little give and take. "There's no way to get any information other than what the company wants to present," says Paula Isola of the Center for Insurance Research, a consumer group based in Cambridge, Mass.

The confidentiality provisions of the law make it unclear whether the documents that Prudential has to produce for the New Jersey insurance department will be made available to the public -- documents that would be of great interest to consumers as well.

"The promises sound good, but whether or not they'll be fully delivered remains to be seen," says Bob Hunter, director of Insurance the Consumer Federation of America. "The devil can be in the details."

Prudential has come under criticism in the past for its close ties to New Jersey officials. As one of the state's largest employers, the company has had several former governors and other political leaders serve on its board. Whitman's husband, John, worked as a senior manager at Prudential-Bache Interfunding, a subsidiary in the company's securities group. He left the job in 1990.

Prudential's move is the latest in the trend of mutual insurance companies going public. John Hancock, MetLife, and Mutual of New York (MONY) have announced similar plans. Prudential officials say that the company needs to reorganize in order to stay competitive, and thus attractive to policyholders.