Because of poor safety loss experience, the American Manufacturing Company is unable to obtain workers compensation insurance in the voluntary market. So, American files an application with the state government to obtain coverage and are allocated to a licensed insurer offering coverage at a higher premium. This is an example of

• A. An assigned risk plan
• B. A state competitive fund
• C. A qualified self-insurance plan
• D. A monopolistic state fund

Answer: (A)

When an employer can’t obtain workers’ compensation insurance in the voluntary market because of poor loss experience, many states rely on a residual market mechanism. The state takes on the task of ensuring coverage by assigning high‑risk employers to licensed private insurers that participate in an assigned risk plan. These insurers issue the policies and the premiums charged are higher to reflect the greater risk. The goal is to make sure every employer has access to coverage, while spreading the risk and cost of high‑risk accounts across the market.

This scenario describes an assigned risk plan. It’s not self‑insurance, which would involve the employer funding and managing its own losses. It’s not a state competitive fund, where a state fund competes with private carriers for new business, and it’s not a monopolistic state fund, where the state is the sole insurer.