Reciprocal Insurance Exchange
What Does Reciprocal Insurance Exchange Mean?
A reciprocal insurance exchange refers to a group of individuals who agree to share each other’s insurance risks through the exchange of insurance contracts or policies. Each member of this group appoints and authorizes an attorney-in-fact to manage the affairs of the exchange.
Additionally, a reciprocal insurance exchange can refer to a collective of subscribers who, through an attorney-in-fact, agree to provide each other with policies against a designated risk. In this arrangement, the subscribers function as both insurers and insured. These subscribers typically engage in the insurance business by issuing and exchanging insurance contracts. A reciprocal inter-insurance group or organization is domiciled in the state where it was created.
A reciprocal insurance exchange is also known as an inter-insurance exchange or reciprocal insurer.
Insuranceopedia Explains Reciprocal Insurance Exchange
A reciprocal insurance exchange consists of groups of individuals, corporations, or firms, collectively referred to as subscribers. These subscribers exchange insurance contracts under the supervision of an attorney-in-fact, whose primary role is to manage the group’s affairs. Each subscriber enters into a similar agreement that empowers the attorney-in-fact to act on their behalf, with the attorney assuming underwriting liability for the agreed-upon policies that cover the members’ risks. This arrangement allows subscribers to avoid the risks associated with their policies, as they are not the underwriters.
Under customary laws, the attorney-in-fact is compensated for their management role through a percentage deduction from the premium income. These premiums typically fund most of the operating expenses. In many cases, the attorney-in-fact is also the promoter and organizer of the exchange, providing initial financing through an interest-bearing surplus note.
