Legal Definitions - assigned risk

Assigned risk refers to a specialized system designed to ensure that individuals or businesses can obtain essential insurance coverage when they are unable to do so through the standard private insurance market. This situation typically arises when private insurers deem an applicant too high-risk to cover, often due to past incidents, a lack of history, or other factors that suggest a higher likelihood of future claims.

Under an assigned risk program, which is often mandated by state law, these high-risk applicants are placed into a "pool" and then assigned to an insurance company that is legally required to provide coverage. While these programs guarantee access to necessary insurance, the policies usually come with higher premiums and offer only the minimum coverage required by law, reflecting the increased risk involved.

Here are some examples illustrating how assigned risk programs function:

• For instance, consider Maria, who has a history of several serious driving infractions, including multiple convictions for driving under the influence (DUI) over the past five years. Despite completing rehabilitation programs and needing to drive for her new job, every private auto insurance company she approaches denies her coverage, viewing her as an extremely high risk. To legally operate a vehicle, Maria applies to her state’s assigned risk pool. The state then mandates a participating insurance company to provide her with a basic liability policy, ensuring she can meet the legal requirement for auto insurance, albeit at a significantly higher premium than a driver with a clean record would pay.

• Another example involves "Green Thumb Landscaping," a small but established business with ten employees. Over the last two years, Green Thumb has experienced an unusual number of significant workers' compensation claims, including a severe fall from a ladder and an injury involving heavy machinery, leading to substantial payouts. As a result, their previous insurer declined to renew their policy, and several other private insurers also refused to offer new coverage, citing their unfavorable claims history. To comply with state law requiring workers' compensation for their employees, Green Thumb Landscaping applies to the state’s assigned risk program. Through this program, an insurer is assigned to provide them with the necessary workers' compensation coverage, allowing them to continue operations legally, even though their premiums will be considerably higher due to their past claims record.