What type of insurer uses a formal sharing arrangement?

Reciprocal insurers utilize a formal sharing arrangement where members (also known as subscribers) mutually agree to insure one another. Under this model, each subscriber provides funds to a common pool used to pay claims for members. The structure is built on the principle of risk-sharing among members, which fosters community and collaboration, as risks are distributed among a group rather than placed solely on the insurer.

This cooperative model differentiates reciprocal insurers from other types like stock or mutual insurers. In stock insurers, for example, shareholders own the company and profits are distributed to them, while mutual insurers are owned by policyholders but do not operate on the same cooperative basis of mutual risk sharing as reciprocal insurers. Fraternal benefit societies, although they share some traits with reciprocal insurers, are typically focused on providing benefits to members of a particular social or religious organization rather than a broad risk-sharing mechanism. The unique risk-sharing arrangement inherent in reciprocal insurers aligns them with the answer to this question.