Assigned risk plans provide auto insurance for drivers that most insurers consider too high-risk to cover. Established by state governments, assigned risk plans offer coverage through ordinary carriers, but cost more than regular car insurance.
Assigned risk plans aren’t for every car owner who’s been rejected for coverage, though. Follow along to learn how an assigned risk plan works, who needs one, and how to qualify for better coverage in the future.
What Is an Assigned Risk Plan?
All states require automobile owners to carry minimum levels of liability insurance, and some also require other coverages such as personal injury protection and uninsured/underinsured motorist. But the standard insurance market—known as the voluntary market—can refuse to insure drivers it deems to have too many risk factors, such as a lack of driving experience or a bad driving record.
Some providers specialize in non-standard policies designed for drivers who have trouble obtaining auto insurance due to factors such as poor credit or traffic violations, like a DUI. But not all car owners meet the underwriting standards of companies that offer high-risk auto insurance.
To meet the insurance needs of drivers who have been turned down by insurers, states have created assigned risk plans, which provide coverage through a pool of insurance companies. These programs enable car owners to get insurance, but assigned risk plans charge substantially higher premiums than policies purchased in the voluntary market.
Workers Compensation Assigned Risk Plans
First-time business owners and those with little business experience sometimes have trouble buying workers compensation insurance, so some states also offer assigned risk plans for this type of insurance. In states that operate a workers compensation assigned risk plan, insurers that sell workers compensation policies must participate in assigned risk plans, according to the International Risk Management Institute.
How Do Assigned Risk Plans Work?
Imagine this scenario: A driver is arrested, charged, and convicted of drunk driving. The court imposes a stiff fine, sentences her to perform a set number of community service hours, and revokes her license for one year. Unable to drive, she cancels her car insurance policy. At the end of the one-year revocation term, she applies for a new auto insurance policy, but all insurers reject her applications.
This is just one example of why assigned risk plans exist. They are designed to enable high-risk drivers to purchase the car insurance required by law, getting them back on the road so they can work and care for their families.
Assigned risk plans are structured in three ways. In 44 states and the District of Columbia, assigned risk plans operate under an Automobile Insurance Plan (AIP) model. An AIP distributes applications to insurance companies based on each carrier’s market share within the state’s voluntary market. The insurer writes and services assigned risk policies in the same way as standard auto policies.
Florida, Michigan, and Missouri employ a Joint Underwriting Association (JUA) model, in which providers in the voluntary market submit assigned risk applications to a select number of insurers that service the policies. New Hampshire and North Carolina require all auto insurance companies to write and service assigned risk auto insurance policies, but allow carriers to transfer ownership of policies to Reinsurance Facilities (RF). An RF is a nonprofit, unincorporated entity through which auto insurance providers can pool policies to service claims.
Do I Need an Assigned Risk Plan?
Having one or more high-risk factors doesn’t automatically mean you’ll need to buy auto insurance through an assigned risk plan. These plans are designed to provide coverage for people who have been rejected for insurance by the voluntary market. Common factors that may lead insurers to reject an applicant include:
- Bad credit: Statistically, people with poor credit file more car insurance claims. Many states allow insurance companies to use credit as a premium rating factor. Bad credit can make it harder for you to find auto insurance coverage.
- Bad driving history: Violations such as reckless driving or driving under the influence can lead to serious consequences for your driving record. For example, a DUI can result in jail time, fees and fines, and a license suspension, and the insurer may increase your premium—or, depending on the severity of the incident, discontinue coverage. State DUI laws vary. For example, the District of Columbia imposes a two- to 90-day license suspension for the first DUI offense, while Georgia imposes a one-year suspension. Serious driving offenses, and the penalties levied by a court, can make it difficult to get auto insurance.
- Insurance history: Insurance companies like low-risk policyholders. People with a history of filing claims or not paying their premiums may not qualify for insurance on the voluntary market.
- Location: Insurers shy away from writing policies for vehicles in high-crime areas. If you live in a neighborhood with a high rate of auto theft or vandalism, the voluntary market may not offer you coverage.
- No driving history: Assigned risk plans may also provide the only coverage outlet for some teen or new adult drivers.
- Specialty vehicles: Some insurance carriers don’t cover specialty automobiles such as antique or custom cars. Typically, owners can cover specialty vehicles with a classic car insurance policy, many of which cover a wide variety of vehicles, from antiques to street rods. But if you’re denied coverage on the voluntary market, you may need to buy insurance through an assigned risk plan.
How to Get an Assigned Risk Plan
Each state has its own assigned risk auto insurance plan, so requirements and procedures vary by location.
Typically, you must search for coverage in the voluntary market before applying for an assigned risk plan. Since assigned risk policies cost more than standard auto insurance, it also makes good financial sense to check the voluntary market first. Only turn to an assigned risk plan as a last resort.
The Automobile Insurance Plans Service Office’s (AIPSO) website provides contact information for each state’s assigned risk plan. On the AIPSO website, you can also register to find out if the organization offers an electronic manual for your state’s assigned risk plan.
Find out if you’re eligible for your state’s plan and which coverages it offers. For instance, Ohio’s plan includes bodily injury and property damage liability coverage, as well as medical payments coverage, and is available to both residents and non-residents. However, some states, including North Dakota, only offer assigned risk plan coverage to residents.
The application process can vary by state. The insurer that writes and services your policy depends on the model of assigned risk plan your state uses: AIP, JUA, or RF.
How to Get a Better Plan
To work your way out of needing an assigned risk plan, correct any issue that may have led insurers to reject your application for standard insurance. If you have poor credit, improve your credit score. If you were disqualified for lack of driving experience, drive safely and reapply for a standard policy after you’ve developed a good driving history.
When reviewing auto insurance applications, providers usually consider traffic violations that have occurred in the past three to five years. By avoiding further violations, you can improve your chances of obtaining a standard, cheaper, car insurance policy after a few years.
Assigned Risk vs. Voluntary Plans
If you qualify for a standard car insurance policy, an insurer will voluntarily offer you coverage. The involuntary market—which offers assigned risk plans—exists to provide coverage for automobile owners who have applied for standard insurance on the voluntary market but have been rejected because they don’t meet the provider’s underwriting guidelines.
- Assigned risk plans provide auto insurance for drivers who don’t qualify for a standard policy.
- Factors such as an applicant’s credit rating and driving history can disqualify them for standard coverage.
- States administer assigned risk plans and insurance carriers in the voluntary market write and service car insurance coverages.
- Policies obtained through assigned risk plans cost significantly more than standard auto policies.
- Over time, motorists covered by an assigned risk plan can try to correct the factor that disqualified them for standard coverage, making it possible for some to purchase insurance for a lower rate on the voluntary market.