Mutual and Reciprocal Insurers
A mutual insurer is typically a single insurer company owned by policyholders. A reciprocal (exchange) is a different architecture: it is an interexchange of indemnity obligations among subscribers, carried out through a common attorney-in-fact (AIF). Florida’s statute says this directly: “reciprocal insurance” is an interexchange among subscribers, and a “reciprocal insurer” is an unincorporated aggregation of subscribers operating through an attorney-in-fact1.
“Unincorporated” does not mean vague or informal. The exchange is still a legally recognized insurer. Florida specifically provides that a reciprocal insurer has a business name and can sue and be sued in its own name. Delaware also reinforces the structure by stating that the subscribers and the attorney-in-fact “comprise a reciprocal insurer and a single entity” for regulatory purposes. This is the bridge between the notional “subscribers insure one another” idea and the practical reality of a centrally run insurer2.
The policyholder-facing mechanics usually live in a subscriber (or membership/subscription) agreement plus a power of attorney, not just in the policy coverage grant. Erie describes this cleanly: Erie Indemnity is the managing attorney-in-fact, the Exchange is subscriber-owned, and each subscriber executes a subscriber’s agreement (a limited power of attorney) appointing Indemnity to act on their behalf. Farmers says the same in plainer customer language: insureds appoint an attorney-in-fact through a Subscription Agreement because subscribers cannot practically issue policies, collect premiums, and run claims themselves; Farmers also states that the Exchange is owned by subscribers, while Farmers Group/Zurich has no ownership interest in the Exchange3.
On liability, the statutes make the reciprocal structure very precise. Florida says subscriber liability (for assessable policies) is individual, several, and proportionate—not joint—and any contingent assessment liability must be stated in the power of attorney or subscribers’ agreement. It also requires assessable policies to disclose the contingent liability. So the legal model is not an unlimited joint pool; it is a regulated, contract-defined several liability structure, with nonassessable policies handled separately4.
An example of the actual language used appears in subscriber agreements for reciprocal exchanges. In the PURE Specialty Exchange membership agreement, members appoint the management company as attorney-in-fact, the AIF is expressly authorized to “exchange with other members … reciprocal insurance contracts,” and the agreement states the exchanged contracts are nonassessable, limiting member liability to policy costs. The same agreement also shows how capital is “slotted in”: surplus contributions are explicitly described as surplus for the benefit and protection of the exchange, not premium, and member savings account balances remain on the exchange’s balance sheet as part of claims-paying ability unless and until distributed under the agreement and regulatory approval5.
There is a notional reciprocal web among subscribers, but it is operationally centralized and legally implemented through the exchange plus the AIF, with subscriber agreements and statutes doing the heavy lifting. In a mutual, the insurer company itself is the contracting party; in a reciprocal, the exchange/AIF framework stands in for what would otherwise be an impractical matrix of bilateral contracts6.