South Dakota Crop Insurance Practice Exam

A group formed to purchase insurance collectively is known as a _____?

1. Reciprocal

2. Captive agency

3. Risk purchasing group

4. Insurance cooperative

The correct answer is: Risk purchasing group

The term that describes a group formed to purchase insurance collectively is "risk purchasing group." This concept refers to an organization that is created specifically for the purpose of pooling resources to secure insurance coverage for its members, thereby reducing costs and increasing bargaining power with insurers. By coming together, members can often negotiate better premiums and terms than they might achieve individually, especially if they belong to a similar industry or profession. In contrast, a reciprocal is a type of insurance arrangement where members exchange risks among themselves, but it does not specifically denote a collective purchasing group. A captive agency refers to an insurance company that is owned by its insureds or by a group representing them, which is a different structure altogether. An insurance cooperative typically refers to a cooperative organization that provides insurance, but it might not have the focused structure of a risk purchasing group which is specifically oriented towards collective purchasing for lower rates or shared policy benefits.