At its core, the Exchange remains committed to its original chartered purpose: to “provide a benefit to its members.” Colonel John Orndorff, USA (Ret), President and Chairman of the Exchange from 1992-1997, captured this essence in a favorite aphorism: “All we sell is a promise.” The truth of that statement remains central to my understanding of how the Exchange should do business, especially in today’s troubled economic times. There is an essential duality associated with insurance products: unless the need arises, they are simply contracts, often perceived by the consumer as amorphous, ethereal and certainly confusing—a collection of barely comprehensible terms, duties and exclusions. And yet, when (properly structured and) the need arises, the insurance contract is expected to form an unshakeable cornerstone of financial security for an individual, and his or her family or business.

If you buy a stock, you assume the risk that the operating performance of the company will not provide an adequate return on your investment (or in some cases that you may lose your investment entirely). If you buy bonds, you assume the risk that the issuer of the bond may default on the debt you have purchased. The rise and fall of prices and returns of both equities and bonds reflect the market’s assessment of relative risk.

Insurance is the exact opposite. Generally, when you make an investment you are purchasing (taking on) risk in hopes of securing a financial return on the risk you assume. When you buy insurance you are transferring your risk to another entity (usually an insurance company). In a very real sense, you have reduced your risk by buying a financial “promise” to pay should a loss occur. Insurance is the transfer of risk, not the “promise” to pay. Premium payments are not dues, nor are the policy provisions an entitlement arrangement in which the object is to “break even” over time. The premiums are a risk assumption charge and each time the policy contract expires (whether or not you have experienced a loss) you have received what you paid for: a reduction in your level of financial risk during the policy period.

By their nature and organization, reciprocal insurance companies such as AFI provide a means to diversify risk. In entering into an AFI insurance contract you are, in effect, transferring your personal financial risk to the other subscribers of the Exchange who agree, jointly and severally, to be obligated to indemnify any covered loss during the term of the policy. This fundamental concept of shared assumption of risk remains the fulcrum of our association as we enter our 122nd year of delivering protection and peace of mind to those who protect our nation.