Motorists Should Try to Steer Clear of the Residual Auto Insurance Market

In their newest FAQ, the writers at explain what residual markets are and why certain auto insurance consumers need to turn to them for coverage.

Online PR News – 15-September-2010 – – While most motorists will not have a problem securing an auto insurance policy on the regular market, some drivers have committed too many traffic violations or have been involved in too many accidents to be considered a desirable risk to an insurer. But, since most states require all drivers to have a policy in place before they hit the road, going without coverage is most likely not an option. Because state governments have a vested interest in seeing that every driver in the state can secure coverage, they aid these motorists by administering programs that provide an alternative to the regular market. This market of last resort is known as the residual or shared market.

For the majority of states, the residual car insurance market comes in the form of an assigned risk plan. These plans work like this: After high-risk consumers or their insurance agents apply for policies on the open market without any success, they may end up submitting the application to the state-regulated offices administering the program. The application from there may be assigned through the program to an auto insurance company operating in the state that will have to provide the driver with a policy. All car insurers are required to participate in the residual market, and the amount of assigned-risk plans an insurer must take on is proportional to the amount of voluntary policies it has already taken on.

Another, less common form that a residual market can take is a reinsurance facility. In states with reinsurance facilities, insurers issue policies to high-risk drivers and then transfer those policies to the state-regulated reinsurance mechanism. Massachusetts had such a system in place until 2008, when the state began a massive overhaul of its insurance laws that shifted to a system of managed competition. To incentivize more insurers to do business there, the state allowed new insurers a two-year exemption from the residual market, although this policy will terminate at the end of 2010.


Though the idea of always having somewhere to turn for car insurance may be reassuring, the residual market is a last resort for motorists, and it should be regarded as such. Premiums for these plans tend to exceed those that could be found on the voluntary market. In addition, residual-market plans may not come with coverage that is as extensive as the coverage provided by standard-market plans.

To access the new FAQ, consumers can go to where visitors will also be able to generate free and comprehensive car insurance quote comparisons.

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