Workers Compensation Assigned Risk Plans

The Market of Last Resort

Worker painting the Brooklyn bridge

Some employers are unable to obtain workers compensation insurance in the standard insurance market. They approach one insurer after another but none will issue a policy. This creates a dilemma for employers because workers compensation insurance is compulsory in most states. Fortunately, each state (and the District of Columbia) has created an assigned risk plan. The plan serves as a safety net for employers that are unable to obtain workers compensation insurance from a "regular" insurer.

Why Coverage May be Hard to Obtain

An employer may have difficulty obtaining a workers compensation policy if it has one or more of the following characteristics:

  • Poor Loss History. A business may have sustained numerous small claims or a few large ones. To an underwriter, a poor loss history is a sign that the employer lacks an effective loss control program.
  • New Business. Insurers prefer to insure established businesses that have a proven track record. A new company is difficult for an underwriter to assess because it has no history and no loss experience.
  • Very Small Business. A very small company may employ only a few workers. The payroll for those workers may generate a premium that's too small in relation to the risk of claims.
  • Hazardous Occupation. Some business operations are inherently dangerous for employees. Examples are roofing, tree pruning, bridge painting, and steel erection. Employees performing such activities can sustain severe injuries that are costly to treat. Thus, many insurers will not provide workers compensation coverage to employers in risky occupations.

What's An Assigned Risk Plan?

An assigned risk plan is the market of last resort for employers that are unable to obtain workers compensation insurance from a standard insurer. It is intended for employers that have no other alternative. Assigned risk plans are also called the residual market or the guaranteed market.

While all states have established an assigned risk plan, no two are exactly alike. State law determines how a plan is operated and financed. In many states, a designated insurer issues all assigned risk policies and pays claims on behalf of insured employers. Some plans are supported by a reinsurance pool in which all workers compensation insurers participate. Each pool participant must pay a portion of the losses incurred by assigned risk policyholders.

Some assigned risk plans are not financed through reinsurance pools. Instead, they are self-supported, financed entirely by the premiums paid by insured employers.

Plan Administration

Each state has a designated assigned risk plan administrator, which operates the program and oversees the issuing of policies. Twenty states and the District of Columbia have authorized the NCCI to administrator their plan. All workers compensation insurers that operate in these jurisdictions must either join a multi-state reinsurance pool or serve as a "direct assignment" carrier. A direct assignment insurer agrees to accept and retain all risks assigned by the NCCI. The insurer pays all losses incurred by the assigned employers and is not reimbursed by reinsurance.

The remaining 30 states administer their own assigned risk plan. Depending on the state, the plan may be overseen by the state insurance fund, the rating bureau, or a designated insurer. The state may require all insurers that operate there to join a reinsurance pool or function as a direct assignment carrier.

How to Obtain Coverage

If your insurance agent is unable to secure workers compensation coverage on your behalf, he or she may submit an application to your state's assigned risk plan administrator. If you are shopping for insurance on your own (without an agent) and are unable to obtain a policy, you can submit an application to the administrator yourself. You must have applied for coverage and been denied by one or more insurers (the number varies by state).

Most assigned risk plans will not accept your application if you are able to obtain coverage in the voluntary market. You may also be rejected if you owe any outstanding premium to a workers compensation insurer.


For employers that seek coverage in the residual market, assigned risk plans have a number of disadvantages.

  • Cost. Employers pay higher rates than those insured in the voluntary market. Policyholders whose experience modifier is greater than 1.0 may also be subject to a surcharge. In addition, most assigned risk plans do not provide a premium discount (a discount applied when the premium exceeds a certain threshold).
  • No Choice of Insurer. Policyholders cannot choose their insurer. Their policy is issued and managed by the plan administrator or servicing carrier.
  • No Payment Plan. Most assigned risk plans to do not offer a payment plan. Policyholders must pay their premium upfront.
  • Less coverage. An assigned risk plan may use a policy form that affords less coverage than the form used in the voluntary market. Policies issued by state insurance funds typically cover injuries sustained in that state only.