South Dakota Crop Insurance Practice Exam

What is the primary function of risk purchasing groups?

1. To provide self-insurance for members

2. To purchase coverage from commercial insurers

3. To administer claims for their members

4. To create fraternal benefit societies

The correct answer is: To purchase coverage from commercial insurers

The primary function of risk purchasing groups is to purchase coverage from commercial insurers. These groups are formed by individuals or businesses with similar insurance needs, allowing them to pool their resources and obtain insurance at a lower cost or with better terms than they might be able to achieve individually. By acting as a single entity to negotiate with insurers, risk purchasing groups can leverage their collective buying power to secure favorable coverage options. This approach benefits members by providing access to a broader range of insurance products and potential cost savings. It is essential for these groups to effectively manage risk and ensure that members receive adequate insurance coverage for their specific needs, which is why purchasing coverage from commercial insurers is their core function. The other options reflect activities or structures that do not align with the primary goals of risk purchasing groups. For instance, while some groups may facilitate self-insurance for members, that is not their main function; instead, their focus is on securing insurance from the market. Similarly, administering claims is typically the responsibility of the insurance providers rather than the purchasing group itself. The creation of fraternal benefit societies pertains to a different model that focuses on mutual aid and benefits rather than the collective purchasing of insurance.