Reciprocal insurance, also known as a reciprocal exchange,is a form of insurance in which the policyholders collectively insure eachother. It is an unincorporated association where members agree to share their risksby contributing premiums and providing indemnification for losses. Thereciprocal insurance is managed by an attorney-in-fact, who manages theinsurance business on behalf of the policyholders.
Here are some key features of reciprocal insurance:
- Membership: Members of the reciprocal insurance arepolicyholders who agree to pool their risks and provide indemnification foreach other's losses.
- Attorney-in-Fact: A reciprocal insurance is managed by anattorney-in-fact, who is appointed by the members. The attorney-in-fact isresponsible for managing the insurance business, collecting premiums, andpaying claims.
- Risk Sharing: The members of a reciprocal insurance sharetheir risks by contributing premiums and providing indemnification for losses.
- Unincorporated Association: A reciprocal insurance is anunincorporated association and is not subject to the same regulations astraditional insurance companies.
- Profit Sharing: Any surplus funds generated by areciprocal insurance are returned to the members as profit sharing.
- Limited Liability: The liability of each member of areciprocal insurance is limited to their contribution to the pool of funds.
Example: One example of a reciprocal insurance is USAA(United Services Automobile Association), which provides insurance andfinancial services to military members and their families. USAA is owned by itspolicyholders, who are also its members.
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