What Does Reciprocity Mean?
Reciprocity refers to the act of legally exchanging privileges among states, businesses, and people. In terms of insurance, it means that insurance companies exchange shares of insurance, usually with the same amount.
Insuranceopedia Explains Reciprocity
It’s a quid pro quo, or mutualism, legalized when entities act reciprocally. For instance, in the United States, this condition allows a licensed nurse in New Mexico to practice the same profession in New York. Likewise, the same privilege is accorded to a New York nurse who wants to practice in New Mexico.
As for insurance, reciprocity happens when an insurance company passes on a number of policies or coverable risks to a reinsurer and the latter, in exchange, gives some of its policies and risks to that company.