What type of insurance organization involves individuals pooling and spreading risk?

A reciprocal inter-insurance exchange is a type of insurance organization that operates on the principle of individuals pooling and sharing their risks. In this arrangement, members of the exchange agree to insure each other by pooling premiums and sharing losses.

Each member of the reciprocal contributes to the risk pool and is both an insurer and an insured. If one member experiences a loss, it is covered by the pooled resources of all the members, thereby spreading the financial risk across the group. This structure fosters a sense of community among members, who are collectively responsible for each other's claims.

While other types of insurance organizations might involve risk sharing, they do not function in quite the same way as a reciprocal inter-insurance exchange. For instance, captive insurers are typically created by a parent company to insure its own risks, and standard insurance companies operate as for-profit entities, which means their primary goal is to generate profits rather than to collectively share risks among members. Non-profit mutual companies do pool risks as well, but they are usually structured differently and not based on reciprocal agreements like inter-insurance exchanges.