If you can’t self-insure, or you choose not to, a reciprocal insurance company offers an alternative. It is a form different from a mutual where policyholders, called subscribers, exchange contracts while an Attorney-In-Fact (AIF) oversees them.
That AIF is managed by a board of governors, often made up of subscribers, and is either owned by the reciprocal company or contracted out.
Privilege Underwriters Reciprocal Exchange (PURE) is one such company that contracts out its AIF and caters to high net worth individuals.
“When we started, we said everybody would rather be part of an insurance company that is run for their benefit, but I’m not sure anybody wanted to go first,” Ross Buchmueller, CEO of PURE said. “The defining characteristic is a reciprocal helps people do together what they couldn’t do on their own.”
PURE offers coverages on jewelry, private fleets of vehicles, yachts and a number of other high value P&C categories and Buchmueller believes an independent or third-party AIF has the distinct advantage of creating an entrepreneurial environment that will attract the most valuable people, as well as being a vehicle for capital flexibility.
“Stock companies tend to operate where somebody puts up capital and the management is promising return on that capital,” Buchmueller noted. “That becomes the defining difference, PURE operates with a sense of purpose. We operate to transfer risk efficiently, while others operate to return on shareholder capital.”
Reciprocals typically issue non-assessable policies and, according to Buchmueller, that’s because subscribers want it that way.
“Human nature says you’re buying insurance to remove risk and you don’t want to worry about having some contingent risks,” Buchmueller said.
The company’s leader, however, is careful not to characterize reciprocals as an exotic form of insurance.
“I don’t think that if you’re a reciprocal, you’re more or less intelligent about making good decisions.”
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