Assigned risk plans offer auto insurance for drivers who are too high-risk to be covered by most insurers. Although they are offered by the state governments, these plans provide coverage through regular carriers but cost more than regular auto insurance.
However, not all car owners who have been denied coverage for their vehicle will need assigned risk plans. Continue reading to find out how an assigned risk plan works and who it is for.
What is an Assigned Risk Program?
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.
Providers may specialize in policies that are not standard and can be used by drivers with poor credit, traffic violations or DUI. But not all car owners meet the underwriting standards of companies that offer high-risk auto insurance.
State governments have established assigned risk plans to meet drivers whose insurance applications have been rejected by their insurers. These plans provide coverage through a group of insurance companies and are designed to help them get insurance. Although these programs allow car owners to obtain insurance, they charge significantly higher premiums than policies bought in the voluntary market.
Workers Compensation Assigned Risk Plans
Some states offer workers compensation insurance plans. This is for those who are new to the business and those who have little business experience. According to the International Risk Management Institute, all insurers selling workers compensation policies in states with a workers compensation assign risk plan must be a part of assigned risk plans.
What is the purpose of Assigned Risk Plans?
Imagine the following scenario: A driver is taken into custody, charged and convicted for drunk driving. The court sentences her to a stiff fine and requires her to complete a number of community service hours. She also loses her driver’s license for a year. She is unable to drive and cancels her car insurance policy. She applies for new auto insurance after the one-year revocation period ends. However, all the insurers reject her requests.
This is only one reason assigned risk plans exist. These plans are intended to allow high-risk drivers to get the required car insurance, so that they can return to work and take care of their families.
There are three types of assigned risk plans. The Automobile Insurance Plan (AIP), is the model used by assigned risk plans in 44 states and District of Columbia. AIP distributes applications for insurance companies based upon each carrier’s market share in the state’s voluntary markets. As with standard auto policies, the insurer also writes and provides services for assigned risk policies.
Florida, Michigan, Missouri and Missouri use a Joint Underwriting Association model. This allows providers in the voluntary market to submit assigned risk applications for a limited number of insurers who service the policies. New Hampshire and North Carolina require auto insurance companies to service and write assigned risk policies. However, carriers can transfer ownership to Reinsurance Facilities (RF) in both states. An RF is a non-profit, unincorporated entity that allows auto insurance providers to pool policies in order to service claims.
What is an assigned risk plan?
You don’t have to purchase auto insurance through an assigned plan if you have one or more of these high-risk factors. These plans provide coverage for those who have been denied insurance through the voluntary market. Common reasons that insurers might reject applicants include:
- Bad credit: Statistics show that people with bad credit are more likely to file car insurance claims. Credit is allowed by many states to be used as a factor in determining premium ratings. You may have a difficult time finding auto insurance coverage if you have bad credit.
- Bad driving record: Driving under the influence or reckless driving can have serious consequences. A DUI can lead to jail time, fines and fees, as well as suspension of your license. Your insurer could also increase your premium or, depending on how serious the incident was, terminate coverage. The District of Columbia, for example, imposes a suspension of your license for the first DUI offense of between two and ninety days. Georgia, however, imposes an immediate suspension of your license for one year. It can be difficult to obtain auto insurance if you are convicted of serious driving offenses and receive the harsh penalties imposed by a court.
- History of insurance: Insurance companies love policyholders with low risk. Insurance companies may not approve people who have a history of filing lawsuits or not paying premiums.
- Localization: High-crime areas are not well covered by insurance companies. The voluntary market might not provide coverage if you live in an area with high rates of vandalism or theft.
- No driving record: Assigned risk plans could also be the only option for some teens or new adults drivers.
- Vehicles with specialties: Some insurance companies don’t cover specialty cars like antique and custom cars. Owners can usually cover specialty vehicles with a Classic car insurance policy. Many of these policies cover all types of vehicles, including antiques and street rods. If you are denied coverage on the voluntary marketplace, you might need to purchase insurance through an assigned-risk plan.
How to get an assigned risk plan
Each state has its own auto insurance plan. Therefore, the requirements and procedures for each location are different.
You will typically need to search the voluntary market for coverage before you apply for an assigned plan.
As assigned risk policies are more expensive than standard auto insurance, it makes financial sense to first check the voluntary market. Assigned risk plans should only be used as a last resort.
The Automobile Insurance Plans Service Office’s (AIPSO) website provides contact information for each state’s assigned risk plan. You can register on the AIPSO website to see if the organization has an electronic manual that addresses your state’s assigned risks.
Find out if your state offers coverage and if you are eligible. 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.
Each state’s application process is different. Your state’s model of assigned risk plans will determine which insurer writes and services your policy.
How to Get a Better Plan
You can work your way around the need for an assigned risk plan by correcting any issues that could have caused insurers to deny your request for standard insurance. If you have poor credit, improve your credit score. After you have accumulated a solid driving record, you can drive safely and apply for a standard policy if you are disqualified because you don’t have enough driving experience.
Providers often consider traffic violations from the past three to five year period when reviewing auto insurance applications.
Avoiding additional violations can increase your chances of getting a standard, lower-cost car insurance policy in the future.
Assigned Risk vs. Voluntary Plans vs. Assigned Risk
An insurer will offer coverage if you are eligible for standard car insurance. Involuntary insurance, which offers assigned risk plans, is available to automobile owners who have applied on the voluntary market for standard car insurance but were rejected by the provider because they do not meet their underwriting guidelines.
