Claims Adjudication in the Personal Automobile Insurance Residual Market

Abstract

Government high-risk insurance plans vary in terms of structure and operation. In automobile insurance, most states have an assigned risk plan (ARP), while a few have a joint underwriting association (JUA). ARPs and JUAs are similar in their purpose: to provide state-mandated automobile insurance coverages to high-risk drivers. They are, however, fundamentally different in their structure and operation. This article analyzes the differences in claims payment practices between these two forms of automobile residual market facility used in the United States. This study predicts that, due to differences in incentives, JUAs result in higher claims payments on the part of insurers. The empirical results are consistent with the prediction.