Assigned risk is a method of providing certain types of insurance to those who otherwise would be denied coverage because they would be considered too high-risk. Individuals who have failed to gain coverage through the private market–also called voluntary market–can apply to receive insurance through their state’s assigned risk “pool.” The state will assign the person to an insurance company within the pool, who must accept and insure that person.
Companies who sell vehicle and workers’ compensation insurance are required to participate in assigned risk programs in the states that have them. However, while assigned risk programs allow people to gain necessary coverage for those activities, the rates gained through these programs are much higher than policies purchased through the private market. Further, most assigned risk plans offer only limited coverage, guaranteeing only the minimum required by law. If a person has no option but to purchase an assigned risk plan, they can try to remedy whatever made them undesirable to insurance companies and apply for a plan on the private market at a later date.
In the context of automobile insurance, a driver might need an assigned risk plan for multiple reasons. Common reasons drivers might be denied on the private market are numerous vehicular infractions or incidents, such as traffic tickets, speeding tickets, or recent accidents. Forty-one states have driver’s license point systems, and in some of these states insurance companies will reject drivers that accumulate too many points. Other reasons might be the inexperience of the driver, poor insurance record or credit, or if the person lives in a high-crime area.
New or very small companies might struggle to purchase a workers’ compensation plan on the private market. More established companies with a history of losses might also be deemed undesirable to insurance companies. Insurers are also reluctant to cover companies whose operations are particularly hazardous. Not every state requires workers’ compensation insurance, but for ones that do, assigned risk plans might be available for such companies.
[Last updated in June of 2021 by the Wex Definitions Team]