Insurance Broker Certification Practice Exam

What kind of insurance relies on collective risk sharing among its members?

1. Commercial insurance

2. Reciprocal insurance

3. Excess insurance

4. Public liability insurance

The correct answer is: Reciprocal insurance

Reciprocal insurance is a unique form of insurance that operates on the principle of collective risk sharing among its members. In a reciprocal insurance arrangement, a group of individuals or entities come together to pool their resources and share the risks associated with insurance coverage. Each member of the group agrees to provide coverage for the others, essentially becoming both an insured and an insurer. This collaborative approach allows members to collectively manage and assume the risks, thus spreading the financial burden of claims across the entire group rather than relying solely on a traditional insurance company. This model can lead to potentially lower premiums and a more personalized insurance experience, as members often have a vested interest in maintaining the health and financial stability of the group. In contrast, commercial insurance is typically provided by large insurance companies that do not depend on mutual risk sharing among a specific group of individuals. Excess insurance is additional coverage that kicks in after a certain limit is reached, and public liability insurance covers the insured against claims made by the public for injury or damage, which do not involve the mutual sharing aspect seen in reciprocal insurance.