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What Is a Reciprocal Insurance Company?

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Reciprocal insurance exchanges offer all types of insurance policies.

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Managing risk is an important component of life, and insurance is a common way to mitigate many types of risk and loss. Traditional insurance companies are typically organized around two common profit-based business structures. However, there is a third type, called a reciprocal insurance exchange, that offers an alternative organizational structure to individuals. Reciprocal exchanges may be of interest to individuals wanting to participate in a not-for-profit insurance environment focused on the policyholder.

Types of Insurance Companies

Reciprocal Insurance


Reciprocal insurance exchanges are unincorporated entities operating through individual legal agreements. Individual members are referred to as subscribers. Subscribers sign an indemnity agreement and pay premiums into an allocated account. When a subscriber suffers a loss that is outlined in the exchange's agreement, the pooled premiums are

used to pay the claim. Each member's liability ends according to the cost of their individual policies. Reciprocal exchanges can house a membership population comprised of any combination of individuals, corporations, partnerships or limited liability companies as outlined in the exchange agreement. These exchanges are not limited to a particular type of insurance or subscriber and may, according to the policies they operate from, offer a wide variety of products including home, auto, renters, recreational and motorcycle policies.


Reciprocal insurance exchanges are managed through an attorney-in-fact. The AIF is hired by the exchange and charged with managing its overall administration, promotion and underwriting. The AIF may be assigned for a specific period of time or in perpetuity and may be an individual or a company. An advisory committee comprised of subscribers oversees the attorney-in-fact and the exchange's operation and finances.

Advantages and Disadvantages

Category: Insurance

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