Which term refers to a market mechanism that places high-risk employers into a pool run by the state or private carriers?

Which term refers to a market mechanism that places high-risk employers into a pool run by the state or private carriers?

• A. Assigned risk/residual market
• B. Guaranteed cost
• C. Large deductible program
• D. Monopolistic States

Answer: (A)

In workers’ compensation, when an employer cannot obtain coverage in the voluntary market due to high risk or lack of history, a system called the assigned risk or residual market is used. This mechanism pools high-risk accounts so they can be insured, either through a state-created pool or via private carriers sharing the risk. Employers in this pool typically pay higher premiums to reflect their elevated risk, and insurers write a portion of these accounts to ensure coverage is available even for the riskiest employers. This setup keeps coverage accessible and helps stabilize the market. That’s why the term best describing this market mechanism is the assigned risk/residual market. The other options describe different financing or market structures and do not describe the pool for high-risk employers.

In workers’ compensation, when an employer cannot obtain coverage in the voluntary market due to high risk or lack of history, a system called the assigned risk or residual market is used. This mechanism pools high-risk accounts so they can be insured, either through a state-created pool or via private carriers sharing the risk. Employers in this pool typically pay higher premiums to reflect their elevated risk, and insurers write a portion of these accounts to ensure coverage is available even for the riskiest employers. This setup keeps coverage accessible and helps stabilize the market.

That’s why the term best describing this market mechanism is the assigned risk/residual market. The other options describe different financing or market structures and do not describe the pool for high-risk employers.