Residual market
Could you further explain how since residual markets usually lose money, how does the voluntary market effectively subsidize the higher-risk residual market?
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Could you further explain how since residual markets usually lose money, how does the voluntary market effectively subsidize the higher-risk residual market?
Comments
In Reinsurance Facilities and Joint Underwriting Associations, loss (or profit if that is the case) is shared among voluntary market participants according to their market share by way of assessments. Assigned Insurance Plans directly assign a high-risk insured to an insurer on an involuntary basis.
Super clear answer. Thanks!
Sure, good luck.
Now that I'm thinking about it some more, isn't it kind of backwards that private insurers that initially reject high-risk insureds still end up having to insure them if they are assigned to them? Is there no way for private insurers to avoid covering high-risk insureds? (aside from the fact that these high risk individuals may not be eligible for an ARP)
AIP assigns these risk to insurers according to certain quotas related to their voluntary market share. The number of risks rejected by and assigned to an insurer will not be the same. But yes, that's essentially the idea, insurers are forced to take on risks that they otherwise would refuse.