What is a residual market insurance policy?

Residual Market — insurance market systems for various lines of coverage (most often workers compensation, personal automobile liability, and property insurance). They serve as a coverage source of last resort for firms and individuals who have been rejected by voluntary market insurers.

The residual market is a segment of the auto insurance market that serves drivers who are considered high risk and are denied coverage by insurers. The residual market works by spreading the risk of insuring these drivers among the licensed insurers within the state.

Residual market insurance programs are funded by: insurers and their policyholders.

An arrangement, either voluntary or required by law, among participating insurers in which applicants for a certain type of insurance who are unable to secure protection in the open market (hard-to-place risks) may be covered by such participating insurers.

Today, property insurance from the residual market is provided by Fair Access to Insurance Requirements (FAIR) Plans, Beach and Windstorm Plans, and two state-run insurance companies in Florida and Louisiana: Florida Citizens Property Insurance Corp. …

What Is Surplus Lines Insurance? Surplus lines insurance protects against a financial risk that is too high for a regular insurance company to take on. … Unlike normal insurance, this insurance can be bought from an insurer not licensed in the insured’s state.

What Is Facultative Reinsurance? Facultative reinsurance is coverage purchased by a primary insurer to cover a single risk—or a block of risks—held in the primary insurer’s book of business. Facultative reinsurance is one of two types of reinsurance (the other type of reinsurance is called treaty reinsurance).

JOINT UNDERWRITING ASSOCIATION / JUA. Insurers which join together to provide coverage for a particular type of risk or size of exposure, when there are difficulties in obtaining coverage in the regular market, and which share in the profits and losses associated with the program.

Each risk retention group must be licensed as a liability insurance company in a single state, referred to as the domicile state. … Risk retention groups are primarily regulated by their domicile states, and insurance commissioners in other states only have limited regulatory authority.

These include the requirement that there be physical damage to property, that it be from insured peril, that it actually prevent, suspend, or at least reduce the ability of the business to operate, and that it continues only for the theoretical time required to repair the property.

North Dakota, Ohio, Wyoming, and Washington are the four states with this specific requirement and are referred to as monopolistic states. Below is what you need to know about each state and their government-operated fund.

The Florida Workers’ Compensation Joint Underwriting Association (FWCJUA) was created in 1993 to provide workers’ compensation insurance to Florida employers who are required by law to maintain such insurance, but are unable to obtain coverage in the private marketplace.

Types of Residual Markets In the four monopolistic states (North Dakota, Ohio, Washington, and Wyoming), all employers except those authorized to self-insure must purchase workers compensation insurance from the state fund—and the state fund must provide coverage to all eligible employers.

A ceding company is an insurance company that passes a portion or all of the risk associated with an insurance policy to another insurer. Ceding is helpful to insurance companies since the ceding company that passes the risk can hedge against undesired exposure to losses.

Competitive State Funds — state-owned and -operated facilities that compete with commercial insurers in writing workers compensation insurance in that state. Note that several of these funds also write workers compensation in additional states.

Insurance companies are notorious for denying and excluding coverage as soon as a widespread problem—like decaying pipes—rears its head. Technically, Citizens could deny any claim by alleging that the policyholder “should have known” that a loss had occurred sooner.

From a financial stability perspective, Citizens benefits from its status as a government-backed nonprofit entity and its ability to impose emergency assessments on all insurance policyholders in Florida.

Citizens Property Insurance Corporation was created in 2002 by the Florida state government to provide property insurance for home-owners who could not obtain insurance elsewhere. It is a government-owned, not for profit, insurer of last resort.

Surplus lines or non-admitted carriers, take on risks declined by admitted carriers. Not licensed by the state, they are not subject to the types of regulations standard insurance carriers are. … As they are not regulated by the state, they do not pay into any guaranty funds, meaning no recourse for insolvent carriers.

Surplus lines insurance is a segment of the insurance market where an insured may obtain coverage from an unadmitted, out-of-state insurer for a risk that traditional or standard insurers are unable or unwilling to insure.

All states permit retail agents and brokers to obtain a surplus lines license or surplus lines authority, which allows them to place insurance directly with surplus lines insurers that accept business from retail licensees.

Definition. Inwards Reinsurance (UK) represent the reinsurance business accepted by an insurer or reinsurer, as opposed to that ceded to another insurer. Also known as: Assumed Reinsurance (US)

Facultative reinsurance is reinsurance for a single risk or a defined package of risks. … The ceding company in treaty reinsurance agrees to cede all risks to the reinsurer. The reinsurer in treaty reinsurance agrees to cover all risks, even though the reinsurer hasn’t performed individual underwriting for each policy.

A reinsurer is a company that provides financial protection to insurance companies. Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.

Each member company is required to report its share of the annual operating results of the FAJUA in its statutory annual statement filed annually with the Office. The Association operates under the supervision of an eleven member Board of Governors (Board) pursuant to a filed and approved Plan of Operation.

The Florida Automobile Joint Underwriting Association is available to licensed drivers and vehicle owners who have been unable to purchase insurance from other companies. The FAJUA is often referred to as “The High Risk Market” or “Market of Last Resort.”

When an underwriter, enters into an agreement with the Company, to purchase certain number of shares or debentures, irrespective of the public subscription, in addition to the open writing, is known as firm underwriting.

Risk retention groups are mutual companies, meaning that they are owned by the members of the group. They can be licensed as a standard mutual insurer, but they can also be licensed as a captive insurer, which is a company organized by a parent company specifically to provide insurance coverage to the parent company.

Examples include: When a business owner determines the cost associated with loss coverage is less than that of paying for partial or full insurance protection. … When a given risk is uninsurable, is excluded from insurance coverage, or if losses fall below insurance policy deductibles.

Risk Retention — planned acceptance of losses by deductibles, deliberate noninsurance, and loss-sensitive plans where some, but not all, risk is consciously retained rather than transferred.

Waiting Period Deductible — (1) A deductible provision sometimes used in business interruption (BI) and other time element policies, in lieu of a dollar amount deductible, that establishes that the insurer is not responsible for loss suffered during a specified period (such as 72 hours) immediately following a direct …

Time Element Insurance — a property insurance term referring to coverage for loss resulting from the inability to put damaged property to its normal use. … The best-known types of time element insurance are business interruption and extra expense coverage.

Business income and extra expense insurance (time element coverage) will pay for your net income and normal operating expenses while your building is nonoperational due to the damage.

A monopolistic state fund is a government-owned and operated fund that is set up to provide insurance coverage in specified states and territories. Each employer located in a state with one of these funds must purchase coverage from the state fund, with no private parties able to compete for the business.

There are four states that do not allow businesses to purchase workers compensation coverage from private insurance carriers—North Dakota, Ohio, Washington, and Wyoming.

In monopolistic states, there is no open market for workers’ comp insurance and seeking such insurance through private companies is not allowed nor offered. Monopolistic states do offer some companies the ability to self-insure, though the requirements to qualify for as a self-insuring employer are restrictive.

Residual Market — insurance market systems for various lines of coverage (most often workers compensation, personal automobile liability, and property insurance).

Residual market insurance programs are funded by: insurers and their policyholders.

Each state’s residual market is managed by either a State Fund, Joint Underwriting Association, Assigned Risk Reinsurance Plan, NCCI’s Workers Compensation Insurance Plan (WCIP or Plan), or an alternative mechanism.

Stop gap coverage provides protection against allegations that an employer has not provided a safe work environment. … To prevent a worker from holding the employer liable for an injury or illness, the employer should consider purchasing stop gap coverage from an insurance provider.