How Assigned Risk Works

Usually, a person looking for insurance would apply through the voluntary market (standard insurance companies). This entails submitting an application to an independent insurer and receiving a quote in return. However, those who classify as an assigned risk may not find an insurance company to cover them under normal circumstances. One of the main reasons why an insurance company would deny their application is quite apparent. High-risk clients are more likely to be in a situation that will force the insurance company to pay on their behalf. For example, the client has a history of getting into car crashes, so a car insurance company is less inclined to provide a plan for them due to the possibility of this trend continuing. In some situations, clients with an assigned risk must turn to a state-operated or specific insurance program. Under these programs, they are provided with what is known as an assigned risk plan.

More often than not, assigned risk plans come with high rates and fees for the client. Furthermore, these assigned risk plans often have limited options when it comes to coverage. Some benefits that would be available in the voluntary market are simply nonexistent in assigned risk plans. In most cases, you'll see assigned risk plans when dealing with auto insurance, which is legally required for every driver, regardless of outside factors.

If independent insurance companies work with the state to provide assigned risk plans, they may put their funds together to negate some of the risks. Yet, this typically does not change the costs for the client. With all of this in mind, a person deemed an assigned risk should look to be insured under an assigned risk plan as a last resort.

Example of Assigned Risk

You're shopping for an auto insurance plan after your old insurance provider decided to stop covering you. It's been a rough year: you've received two speeding tickets and were at fault in a car accident. You've also been in a couple of other car accidents in the past. To top it off, you live in a part of New York where car vandalization and crime rates are high, which is another factor that can raise car insurance rates.

For the past month, you haven't been able to find an insurance company that will cover you— and the one that did give you a quote is out of your price range. Now, you are classified as an assigned risk and are working with the state to get coverage. Once you can get on an assigned risk plan, you receive a slightly lower rate, although it is considerably higher than what you were paying before your driving infractions. There are not as many coverage benefits either.

If, after many years, you haven't gotten into additional accidents, you may just be able to try for another insurance plan in the voluntary market.