What is a voluntary unincorporated business created to write insurance for its subscribers: a group of individuals, partnerships, and corporations in which each agrees to insure the other?

Question

Options

• Asurplus stock exchange
• Bescrow requirements funds
• Ctreasury stock exchange
• Dreciprocal insurance exchange

• A
  5% (1)
• B
  5% (1)
• C
  10% (2)
• D
  80% (16)

Explanation

Reciprocal insurance exchange (D) is correct because it precisely describes this structure: a voluntary, unincorporated arrangement where subscribers (individuals, partnerships, or corporations) mutually insure one another, managed by an attorney-in-fact on their behalf. Each member is both an insurer and an insured, which is the defining characteristic of a reciprocal exchange.

Why the distractors are wrong:

• A (surplus stock exchange) - "Surplus lines" is a real insurance concept (covering hard-to-place risks), but a "surplus stock exchange" is not a recognized insurance entity type.
• B (escrow requirements funds) - This is not an insurance entity at all; escrow relates to holding funds in trust during transactions, typically in real estate or lending.
• C (treasury stock exchange) - Treasury stock refers to a corporation's repurchased shares; it has no connection to insurance structures.

Memory tip: Think of the word reciprocal - "I cover you, you cover me." The mutual, back-and-forth obligation among subscribers is the core idea. If the question describes members insuring each other in an unincorporated group, that's always a reciprocal exchange.

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