A group of independent freight shipping companies decides to pool their resources to provide commercial auto liability coverage for their truck fleets. They establish a formal arrangement where each participating company agrees to assume a proportional share of every other member's risks. Rather than managing the daily operations themselves, the participating companies appoint an administrator, known as an attorney-in-fact, to handle underwriting, issue policies, and manage claims on their behalf.
Based on this structure, what type of insurance entity have these shipping companies formed?
- A reciprocal insurance exchangeAnswer
- BA mutual insurance company
- CA stock insurance company
- DA fraternal benefit society
Answer
The correct answer is a reciprocal insurance exchange.
The correct answer accurately identifies the entity as a reciprocal insurance exchange. A reciprocal is a unique, unincorporated arrangement where members (called subscribers) agree to insure each other, thereby sharing risks. A defining characteristic of a reciprocal is that its daily operations, such as underwriting and claims handling, are administered by a designated attorney-in-fact rather than a traditional corporate board of directors.
Step-by-Step Solution
Key Concept
Corporate Structure and Operations of Insurance Entities