What Is A Reciprocal?

A reciprocal is created when people or organizations in the same business agree to share each other's losses on a not-for-profit basis. As with commercial insurers, the underlying principle of a reciprocal is based on achieving what is termed "spread of risk", in which the experience of loss evens out and becomes more predictable.

As the number of members in a reciprocal increases, so does the reciprocal's ability to forecast the likelihood of losses, thereby improving stability and reducing both overhead and costs of reinsurance for shock losses.

The history of reciprocals reaches back more than three centuries and includes the earliest insurance companies. There are many reciprocals operating in Canada at present in diverse fields such as healthcare, municipalities, universities and colleges, electric utility distribution and urban transit authorities.

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