South Dakota Crop Insurance Practice Exam

Which insurance organization compensates its administrator as "attorney in fact" for subscribers?

1. Stock company

2. Mutual company

3. Reciprocal

4. Foreign insurer

The correct answer is: Reciprocal

The correct answer is the reciprocal insurance organization. In a reciprocal organization, the members (subscribers) agree to share the risks among themselves. The organization is managed by an entity known as the "attorney in fact," which acts on behalf of the subscribers. This attorney in fact handles the operations, underwriting, and claims management for the pool of risks shared by the members. This structure is distinct from other types of insurance organizations. A stock company functions primarily for profit and has shareholders, while a mutual company is owned by its policyholders and typically operates based on their interests. A foreign insurer refers to an insurance company incorporated outside of the state in which it operates, which does not inherently involve the subscriber-based risk-sharing mechanism found in reciprocal arrangements. Therefore, the uniqueness of the reciprocal model lies in its structure of mutual risk-sharing and compensation through the attorney in fact, highlighting why this answer is accurate.