What are High-Risk Pools in Insurance?

In the United States, high-risk pools are groups of insurance policyholders who are actuarially determined to be at a greater risk than all policyholders for the risk insured against. High-risk pools of automobile insurance policyholders, for example, consist of drivers with poor driving records, indicating that they’re at greater risk of having an auto accident than policyholders with good driving records. High-risk individuals, in many cases, would ordinarily be denied the right to purchase the insurance involved; these pools are established to give them the opportunity to carry the insurance despite the risk. The insurer identifies these policyholders and “pools” them together for actuarial purposes.

There are high-risk pools in many different insurance categories. In most cases, the policyholders themselves pay a higher premium to have the insurance; part of the reason for the establishment of these pools is to shield the other policyholders — those of “normal” risk — from the higher risks. Those who work in law enforcement and firefighting, for example, are recognized as being in high-risk occupations, and when they purchase life insurance, they’re usually put into a high-risk pool established for those with dangerous occupations. Similar situations exist for people with hazardous hobbies like sky diving, scuba diving and motorcycle racing.

High-risk pools for automobile insurance — called “assigned risk” pools in some states — are found in most states so that drivers with poor records can obtain insurance. Some states mandate that all insurers operating in the state accept some drivers from the high-risk pool, at high-risk premiums, to spread the risk. Newly licensed drivers, with no driving record, are often included in the assigned-risk pools for the first year or two of their driving careers, after which they can purchase coverage suitable with their driving records.

High-risk pools of health insurance policyholders have long been a feature of the American health insurance market, but they attracted new attention with the debate over health care reform in the US that culminated in 2010. The health-care reform legislation enacted that year prohibited health insurance companies, beginning in 2014, from denying coverage to prospective adult policyholders on the basis of pre-existing conditions. Between the bill’s enactment and that time, those who were denied coverage for that reason were permitted to join federally subsidized high-risk pools established in each state.

High-risk pools in health insurance are controversial. Their proponents claim that by segregating the high-risk individuals, premiums are reduced for the remaining, “normal-risk” policyholders. Opponents point out that the point of insurance is to spread risk, not aggregate it, and that segregation of some policyholders into high-risk pools dramatically increases their premiums while creating a pool that’s far more likely to need care.