In an assigned risk plan, insurance rates are usually slightly higher than voluntary market rates for comparable classifications.

• A. Significantly lower
• B. Slightly higher
• C. Much lower
• D. The same

Answer: (B)

Premiums in residual market (assigned risk) plans reflect higher risk and the additional costs of administering a pool for applicants who can’t obtain coverage in the voluntary market. Because these policyholders often have poorer loss histories or face placement challenges, the pricing includes a loading to cover expected higher losses and the administrative expenses of running the plan. That combination means rates for the same classification are typically slightly higher in the assigned risk plan than in the voluntary market. The difference is usually modest, since the goal is to provide access to coverage while not overpricing high-risk risks. Rates being significantly lower, much lower, or the same would not align with the extra risk and costs inherent in the residual market.