Assigned risk refers to individuals or companies that cannot obtain insurance through normal means and are placed in a pool for insurers to cover. This is seen as better for society as a whole. In auto insurance, drivers with bad driving history can apply to be placed in the assigned risk pool. The cost of insurance is usually higher to compensate for poor risk coverage. Similar pools exist for workers’ compensation and health insurance.
Assigned risk is a term used to describe a person or company that cannot obtain insurance through normal means and is placed in an assigned risk pool of people for insurers to cover. This term is most commonly seen in auto insurance, although it can also be used to refer to companies that cannot obtain workers’ compensation insurance through other means. The purpose of this is to ensure that everyone can access insurance because this is seen as better for society as a whole than the alternative.
In the case of a driver, drivers often find it difficult to obtain insurance if they have a bad driving history. If a driver applies for insurance multiple times and is rejected, the driver can submit an application to be placed into their assigned risk pool. This pool of drivers is serviced by every licensed insurance company as the government requires insurance companies to participate in their assigned risk pool.
The driver is assigned to a specific company and the insurer provides coverage. However, the cost of insurance is usually much higher than that of insurance purchased on the open market. This is designed to compensate the insurance company for poor risk coverage. The insurer knows he will likely have to pay the driver’s policy. Insurance works like regular insurance, and in areas where drivers need to be insured to drive an assigned risk pool ensures that everyone on the road has the option to purchase insurance, even though it might be expensive.
In workers’ compensation, a similar situation may arise. A company with a poor track record may apply for insurance and be repeatedly rejected by insurance companies that consider the applicant to be a low risk. Since workers’ compensation is required in most regions for the safety and benefit of workers, the business can be placed in an assigned risk pool to obtain mandatory coverage through an insurer. As with the risk pools allocated for motorists, the price of insurance is much higher.
Similar pools have also been established for health insurance. Some regions have a high-risk insurance pool that people can apply to join if they have trouble getting health insurance. Typically the level of coverage offered is much lower and premiums can be high, but people may find this acceptable as the alternative is to pay for all healthcare out of pocket. Since most of the people who end up in the high-risk pool have costly health problems, expensive insurance is preferable to covering all health care costs yourself.
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