Reciprocal insurance exchange

A reciprocal insurance exchange is an unincorporated group of policyholders, called subscribers, who agree to insure one another. It has no shareholders. Instead, each subscriber signs an agreement appointing an attorney-in-fact, a separate company that runs the exchange: selling policies, underwriting, handling claims and investing funds, in return for a fee that is often a percentage of premiums.

Some of the largest auto insurers are reciprocals. USAA's main property and casualty insurer is a reciprocal interinsurance exchange; Erie Insurance Exchange is managed by Erie Indemnity Company as attorney-in-fact; and Farmers Insurance Exchange is managed by Farmers Group, Inc. A smaller example is CURE, the Citizens United Reciprocal Exchange.

For a driver, buying from a reciprocal works like buying from any other insurer: the policy, the claims process and state regulation are the same. The differences are structural. Like a mutual insurance company, an exchange is owned by its customers and can return surplus to them. The attorney-in-fact, however, can be a separate for-profit company, even a publicly traded one, so its interests and the subscribers' are not always identical. As with any insurer, check financial strength through an AM Best rating. See mutual vs stock insurers: does ownership matter?.