Who funds residual market insurance programs?

Residual market insurance programs are designed to provide coverage for individuals and businesses that are unable to obtain insurance through the standard market due to various risks. The funding for these programs comes from both insurers and their policyholders.

Insurers contribute to the residual market through a system of assessments or fees, which are essentially shared costs among the insurers participating in the program. This helps ensure that there is sufficient capital to cover the risks and claims associated with those who cannot find coverage elsewhere.

Furthermore, policyholders in the residual market may also indirectly bear some of the costs through higher premiums on policies as insurers include the costs associated with residual market risks in their overall pricing. This cooperation between insurers and policyholders fosters a system where coverage is more widely available, helping to stabilize the insurance market for high-risk individuals and businesses.

In contrast, funding solely by insurers would not fully support the sustainability of the program, and involvement of state governments, while relevant in terms of regulations and oversight, does not directly fund these programs. Thus, the answer reflects a collaborative approach to risk management within the insurance ecosystem.