What distinguishes reciprocals in insurance?

Reciprocals in insurance are distinct because each subscriber pays premiums into a collective fund. This model operates on the principle of mutual assistance among policyholders, where the collected premiums are used to pay claims. Subscribers increasingly feel a sense of ownership and participation in the operation because the profits, if any, are typically returned to them, either through reduced premiums or dividends, reinforcing the collaborative nature of reciprocals.

While some may consider the operational structure of reciprocals to be nonprofit, this is not a defining characteristic since they can still generate surplus. The notion that all reciprocals are incorporated entities is not necessarily true, as the legal structure can vary. Additionally, while reciprocals may underwrite various risks, they do not solely focus on business risks; they can cover personal lines of insurance as well. Thus, the aspect of collective funding by subscribers is what truly distinguishes reciprocals within the insurance industry.