An insurance structure where ownership resides with a collective, rather than individual shareholders, is a specific type of risk management entity. These organizations are often established when a defined group such as businesses within a particular industry, members of an association, or employers within a common geographic area identifies a need for tailored insurance coverage not readily available or affordable in the conventional market. A concrete example is a collection of hospitals forming an entity to insure against medical malpractice claims.
The significance of these structures lies in their ability to provide targeted insurance solutions, potentially at lower costs, due to the elimination of profit motives inherent in traditional insurance companies. Furthermore, they allow the member group to exercise greater control over underwriting standards, claims management, and overall risk mitigation strategies. Historically, the formation of such entities has been driven by periods of high insurance premiums or limited market capacity in specific sectors, prompting groups to seek self-insurance options.
