Assigned Risk Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Assigned Risk, written in plain English, along with examples of how it is used.

What is Assigned Risk?

(n) Assigned Risk is the contingent liability associated with an insurance cover which has been transferred to another person or entity along with the premium of such assigned policy.

History and Meaning of Assigned Risk

Assigned Risk is the term used to describe the situation in which an insurer is required by law to provide coverage to a person, business or entity even though they are considered to be high-risk. This type of policy is usually more expensive than standard insurance policies, as the insurer is taking on an increased level of risk. This type of policy is typically assigned by a state government to a particular insurer on a rotating basis.

Assigned Risk plans were first introduced in the United States in the 1940s as a way to ensure that high-risk drivers could obtain car insurance. Since then, the use of Assigned Risk policies has expanded to cover other areas of insurance, such as workers' compensation and liability insurance.

Examples of Assigned Risk

  1. A person with a poor driving record may be assigned to an Assigned Risk plan by the state department of motor vehicles, making it mandatory for an insurance company to provide them with coverage, even though they represent a higher risk of accidents and claims.

  2. A small business that operates in a high-risk industry, such as construction or manufacturing, may be required by law to obtain Assigned Risk workers' compensation insurance.

  3. A new driver who has just obtained their driver's license and has no prior driving history may also be assigned to an Assigned Risk plan until they have established a driving history.

Legal Terms Similar to Assigned Risk

  1. Risk Pooling: a mechanism by which the cost of insuring high-risk individuals is shared among a large group of people or entities, so that the burden of higher premiums is spread out over a wider population.

  2. High-risk Insurance: a type of insurance policy that covers individuals or entities that are considered high-risk, such as those with poor driving records or those operating in high-risk industries.

  3. Underwriting: the process by which an insurance company evaluates an individual or entity's risk and determines the appropriate level of coverage and premium for their policy.