Spring 2015 Q11b - ARP effectiveness
The answer in the examiners report for evaluating the effectiveness of ARP states that rates are often too low for high risk drivers and subsidized by safer drivers. Could you explain how lower risk drivers subsidize the higher risk drivers in an assigned risk plan?
Since regulators set uniform rates in the ARP, are insurance companies recognizing that these rates aren't exactly adequate and are thus increasing rates for low-risk drivers in the primary market to compensate for these high risk drivers?
It seems silly that insurers know that they don't want to UW these high-risk insureds and can reject them, only for them to be assigned to them again through an ARP.
Comments
Your explanation is correct.