Attorney-in-fact

In insurance, an attorney-in-fact is the manager of a reciprocal exchange. It is not a lawyer. The term means a person or company holding a power of attorney, and here every policyholder of the exchange signs a subscriber's agreement appointing the same one to act for them.

Under that authority, the attorney-in-fact runs the exchange: it sets up underwriting, sells policies, handles claims, manages investments and files with regulators. For this it takes a management fee, usually a percentage of the exchange's premiums. Erie Indemnity, the attorney-in-fact for the Erie Insurance Exchange, states in recent annual reports that its fee may not exceed 25% of premiums, and its board sets the actual rate at least yearly. Claims are paid from the exchange's assets, not from the attorney-in-fact's own capital.

The attorney-in-fact is frequently a for-profit company with its own shareholders, so its interests and subscribers' can diverge, particularly on fees and expenses. Regulators review the arrangement, and policyholders have sued over it before. To a homeowner this seldom changes day-to-day service. It does matter when you assess who stands behind the policy and where the surplus sits. See how reciprocal exchanges work and how ownership structures compare.