What defines a reciprocal company?

A reciprocal company is defined by the principle that its members, known as subscribers, mutually share the risks associated with the insurance coverage they provide to one another. In this structure, each subscriber agrees to pay a premium to cover the risks of all participants, thus fostering a sense of cooperation and shared responsibility among members. This model is foundational to the reciprocal insurance business, as it emphasizes collective risk management and support.

In contrast, the other options describe concepts that do not accurately characterize a reciprocal company. For instance, while shareholders may be involved in some insurance companies, in a reciprocal company, the relationship is built on mutuality without shareholders per se. The notion that all members are profit-oriented does not align with the reciprocal model, which focuses more on risk-sharing than on generating profits. Lastly, while some form of liability limitations may exist in many types of insurance entities, the defining characteristic of a reciprocal company fundamentally lies in the cooperative risk-sharing among its subscribers.