Assigned risk is a concept used in the insurance industry which refers to individuals or entities that are deemed to be too risky, or uninsurable, by certain insurance companies.
When an individual or entity has difficulty getting coverage from other traditional sources, they are deemed to be in the “assigned risk” category. In these cases, insurers may be willing to provide coverage, but under specific terms and conditions, typically at higher prices than other policies.
Assigned risk is often referenced in terms of a “pool” or “facility,” comprising of multiple insurers who are willing to take on the risk for a fee. Each individual insurer in the pool agrees to receive a portion of the risk as assigned by the risk manager, with the expectation that their individual payments will produce an overall profit.
Why Is Assigned Risk Necessary?
Assigned risk helps to reduce the cost of insurance premiums for customers that would otherwise be unable to purchase insurance at traditional rates. By pooling the risks into one facility, insurers can spread their losses and costs across multiple parties.
In addition, assigned risk helps provide coverage and protection for individuals and businesses that may otherwise not be able to afford it, preventing any financial hardship or difficulty they may face without adequate coverage.
What Are Some Examples of Assigned Risk?
Common examples of types of risks that may be assigned to a single facility include hazardous businesses and activities, such as construction works, oil exploration, manufacturing, and transport. Other examples include homeowners’ insurance for high-risk areas, such as flood zones, fire-prone regions, or areas prone to natural disasters.
In today’s world, there may also be assigned risk for businesses that are at increased risk of cyber attacks and other online threats. These businesses may require specialized coverage to protect their assets and ensure that the costs of losses or damages caused by cyber threats are covered by their insurance policy.