What Is Assigned Risk Insurance and Who Needs It?

Assigned risk insurance serves as a safety net for individuals and businesses unable to secure coverage within the traditional insurance market. It ensures essential insurance protection remains available, even for high-risk entities. This system operates as a last-resort option, preventing gaps in legally mandated insurance coverage.

What Assigned Risk Insurance Is

Assigned risk insurance refers to state-mandated programs providing coverage to applicants deemed too high-risk for the standard insurance market. Its purpose is to guarantee access to necessary insurance, such as auto or workers’ compensation, for otherwise uninsurable entities. These programs ensure individuals and businesses meet legal requirements for coverage.

Insurance companies licensed within a state are required to participate in these assigned risk plans. They must accept a share of high-risk applicants, distributing the burden across the industry. Essential insurance should be accessible to all, even if it comes at a higher cost. These plans are a necessary avenue when standard options have been exhausted.

Who Needs It and What It Covers

Many factors can lead individuals or businesses to seek coverage through an assigned risk plan. Drivers with a history of multiple accidents, serious traffic violations like DUIs, or canceled insurance policies often find themselves in this situation. Inexperienced drivers or those with poor credit scores may also encounter difficulty obtaining coverage in the standard market.

Businesses in inherently high-risk industries, such as certain construction sectors or logging, may also need to rely on assigned risk plans. Companies with a history of frequent claims, poor safety records, or new businesses without an established insurance history might also be unable to secure coverage elsewhere. Auto insurance and workers’ compensation are the most common types of coverage available through these plans.

The Operational Mechanics

The process of obtaining assigned risk insurance typically begins with a licensed insurance agent. This agent first attempts to secure coverage in the standard market and, upon denial, submits an application to the state’s assigned risk plan. Some states may require proof of multiple denials from traditional insurers before an application to the assigned risk pool can be made.

Once an application is accepted, the assigned risk plan allocates the applicant to one of the participating insurance companies. This assignment occurs on a rotating or proportional basis, meaning the applicant does not have the ability to choose their insurer. The designated insurer then issues the policy.

Premiums for assigned risk policies are generally higher than those in the voluntary market, reflecting the increased risk. These rates are often determined and approved by the state or the plan administrator, taking into account various rating factors such as driving record, age, and location. Assigned risk insurance is usually considered a temporary solution, and policyholders are encouraged to improve their risk profile over time to eventually qualify for coverage in the standard insurance market.