What Is Assigned Risk and How It Affects Your Insurance

Assigned risk in the insurance industry serves as a mechanism to ensure that individuals and businesses can obtain coverage when they are unable to do so through the standard, or voluntary, market. It addresses situations where the perceived risk associated with an applicant is too high for conventional insurers to willingly accept. This framework facilitates compliance with mandatory insurance requirements, such as those for vehicle operation or workers’ compensation, thereby preventing gaps in coverage across the population.

Understanding Assigned Risk

Assigned risk plans are established to provide a market of last resort for those deemed high-risk by traditional insurance carriers. State insurance regulators recognize that while insurers prefer to underwrite profitable policies, it is in the public interest to extend coverage to entities that need protection but cannot secure it conventionally.

These plans operate on the principle that all licensed insurers within a given jurisdiction share in the responsibility of providing this coverage. Insurers typically participate in these pools proportionally to their market share in the state’s voluntary market. For instance, an insurer writing 10% of the standard auto insurance business in a state might be assigned 10% of the high-risk applicants. This collaborative approach ensures that the burden of insuring higher-risk entities is distributed across the industry, preventing any single insurer from being disproportionately affected.

Types of Insurance and Eligibility

Assigned risk plans commonly provide specific types of insurance that are often mandated by law, such as automobile liability insurance and workers’ compensation insurance. Automobile assigned risk pools cater to drivers who struggle to find coverage due to factors like a poor driving record, a history of multiple accidents, numerous traffic violations, or even a low credit score. Young or inexperienced drivers might also find themselves in this category due to a lack of driving history.

For businesses, workers’ compensation assigned risk plans ensure employers can meet their statutory obligations to provide coverage for employees, particularly if they are new businesses, have a history of frequent or severe claims, or operate in hazardous industries. Eligibility often requires an applicant to demonstrate that they have been declined coverage by a certain number of standard market insurers. Additionally, applicants usually must not have outstanding premium obligations from previous policies.

Obtaining Coverage Through Assigned Risk

The process of obtaining coverage through an assigned risk plan typically begins when an individual or business has been unable to secure insurance in the standard market. The first step usually involves working with a licensed insurance agent or broker who can guide the applicant through the specific procedures for their jurisdiction. These agents often have access to the state-run assigned risk plans and can assist in preparing the necessary documentation.

Applicants generally need to submit an official application, which includes detailed information about their driving history, past claims, or business operations. Once the application is submitted, it is reviewed by the plan administrator. The applicant is then assigned to a specific insurer within the pool.

Premium Determination and Transition

Premiums for policies obtained through assigned risk plans are higher than those in the standard insurance market. This increased cost reflects the higher risk profile of the policyholders, as they are more likely to generate claims. State insurance departments regulate these rates, ensuring they are fair and cover the associated risks. Factors such as driving record, age, vehicle type, location, and credit score can influence the specific premium calculation.

A primary objective for policyholders in an assigned risk plan is to improve their risk profile over time. For drivers, this involves maintaining a clean driving record, avoiding accidents, and demonstrating responsible driving habits. Businesses can focus on implementing safety measures, reducing claim frequency, and improving their financial standing. The goal is to eventually qualify for coverage in the standard insurance market, where a broader range of options and lower premiums are available.