Comparisons

PaulKory

Trying to compare Assigned Risk Plans/Auto Insurance Plans, Joint Underwriting Associations, Reinsurance Facilities, and FAIR plans. Does the following all look correct?

Line of business:

• Auto: ARP/AIP, JUA, RF
• Homeowners: FAIR Plan

Must be explicitly rejected by voluntary market and then apply to residual market?

• Yes: ARP/AIP, FAIR Plan
• No: JUA, RF

Serviced by:

• Assigned Insurer: ARP/AIP
• Assigned Servicing Carrier (selected from specific subset of insurers in state): JUA
• Insurer applied to: RF, FAIR Plan (unlike the others, not also a voluntary market insurer)

Premiums/Losses shared among insurers in state by market share?

• Yes: JUA, RF, FAIR Plan
• No: ARP/AIP (but policies are shared by market share, so the effect is similar, if more volatile)

Rates determined by:

• Regulator: ARP/AIP
• JUA (uniform based on pool experience): JUA
• Insurer: RF
• FAIR Plan: FAIR Plan

Rates same for equivalent insureds?

• Yes: ARP/AIP, FAIR Plan, JUA
• No: RF

graham

Line of business:

• This is the correct classification in the context of the Cook reading but Cook specifically discusses only personal lines. Assigned risk plans can also, for example, apply to other lines of business like worker's comp.

Must be explicitly rejected by voluntary market and then apply to residual market?

• For ARP and FAIR plans, the private market must explicitly reject the insured and the insured will know this.

• For JUA and RF, it's not quite so clear. Here, the insurer would reject the policy but the insured would not know this. This question came up in a previous forum question. See link below: (You may have to scroll down.)
  ==> https://battleacts6us.ca/vanillaforum6us/discussion/27/jua-and-rf

• I also added a wiki page to address this question.
  ==> https://battleacts6us.ca/wiki6us/JUA:_Does_Insured_Know

Serviced by:

• Your summary is accurate.

Premiums/Losses shared among insurers in state by market share?

• Your summary is accurate. (That's a good observation about ARP tending to be more volatile for individual insurers versus RF/JUA/FAIR.)

Rates determined by:

• Your summary is accurate for ARP/JUA/FAIR.
• For RF, the way rates are determined is not explained in the Cook reading and may vary greatly by state anyway. Presumably however, rates are determined by actuaries employed with state RFs although if rates were based entirely on actuarial considerations, they would be unaffordable for many in this high-risk category and this would defeat the purpose of the RF.

Rates same for equivalent insureds?

• This would potentially only be true for insureds in the same state. (Although you might argue that insureds in different states can't be equivalent anyway.)
• I believe your summary is accurate for ARP/JUA/FAIR but that your summary for RF is not accurate.
• For ARP and JUA, the rates are "uniform", but the term "uniform" is not explicitly defined. It seems reasonable however to assume that equivalent insureds would be charged the same rate.
• For FAIR, pricing is not discussed in any detail. Each state has its own FAIR plan but it's probably safe to say that equivalent insureds (within a state) are charged the same rates.
• For RF, equivalent insureds should be charged the same rates based.

downthesun

Hi, could you clarify what's meant by "equivalent insureds"? I have questions about rates in the auto residual market, so this thread has been helpful.

• AIP - Regulators set the rates. Is this to ensure affordability for high-risks? The alternative being that they may drive without insurance which would be a social issue. If the rates are set to be "affordable" are the rates being subsidized by the rest of the book of business?
• JUA - It sounds like actuarially sound rates are charged based on pool experience. Doesn't that lead to concern that high-risks that can't afford the rates will drive without insurance?
• RF - It seems that Cook doesn't go into detail about this, but that the thought is that the rates are subsidized in some way?

Is the purpose of the residual market the ability obtain ****affordable**** coverage for high-risk insureds, or just ensure that there's available coverage?

Staff - AC

"Equivalent insureds" are those that have the same risk characteristics. It's a way of saying "everything being equal."

AIP rates are set according to pool experience: they are not subsidized by the regulator. The insurer that the AIP policies are assigned to has the ability to subsidize these policies with rate increases on their voluntary book, but this would be an iffy strategy, and I have not ever seen this done.

Generally, residual market risks are priced according to their own pool experience. The goal is availability, not affordability. Their rates will inevitably be higher, and yes, there's the chance that they will go without insurance.