Assigned risk plans operate in 42 states and Washington D.C.
AIPSO provides ratemaking for most of the residual market facilities in the country including most JUAs, assigned risk plans, and reinsurance facilities.
Future research is needed to test the prediction of the model that joint underwriting association servicing carriers are more likely to pay claims than carriers participating in assigned risk plans. Research on the carriers who service joint underwriting association business is also needed.
If the pool mechanism is an assigned risk plan, f equals 1.
The portion of the business that is not reinsured is carried by the insurer in the same way that insurers bear financial responsibility for policies written through an assigned risk plan. If reinsurance facilities allowed insurers to reinsure all of their business, the mechanism would be equivalent to a joint underwriting association that allowed all insurers to act as servicing carriers.
To illustrate the relationship between involuntary market design and restrictions on classification, consider the probable consequences if a state with an assigned risk plan were to prohibit territorial rating in a way that initially mandated reduced premium rates in urban areas and increased premium rates in nonurban areas.(17) Following such a change, insurers would know that rates were below expected costs in urban areas and above expected costs in nonurban areas.
First, the concentration of the urban market in the assigned risk plan would be inconsistent with the prohibition of the use of place of residence as a rating variable.
14 An assigned risk plan is an involuntary market mechanism in which people can apply to the plan for coverage and have coverage assigned to an insurer in the state at a regulated rate.
In this study, [lambda.sub.I] is the inverse of the target loss ratio for the involuntary market that would produce zero underwriting profits according to the Automobile Insurance Plans Service Office (AIPSO Facts, 1983), the official industry ratemaking organization for the involuntary market in states with assigned risk plans. These targets assume that all investment income is needed to cover income tax costs, the cost of capital, and any other costs not included in underwriting expenses.
Accident-year loss data were reported for states with assigned risk plans; calendar-year loss data were reported for the states with alternative mechanisms.
Over 40 states have assigned risk plans in which involuntary market insureds are assigned to insurers in proportion to their voluntary market share.
Until the early 1980s, AIPSO Facts reported voluntary market premiums and losses for liability coverage, but only for states with assigned risk plans. Moreover, accident-year losses are reported for most states in this source, and they include loss adjustment expenses, whereas the Best calendar-year data exclude all loss adjustment costs.