Simply put, uninsurable risks are risks that an insurer is not going to be willing to take on. The insurer has looked at the situation and realized that there is no good reason to be the insurer. There is essentially no upside for the insurer and a bad outcome is nearly guaranteed. In some situations, insurance could even be against the law.
Examples of Uninsurable Risks
There are many types of uninsurable risks. Any of the following could be an uninsurable risk that will not or cannot be covered by an insurer:
- A person who is terminally ill wants life insurance
- A homeowner in an area that is frequently hit by hurricanes wants hurricane coverage
- A company wants coverage that can help them salvage its reputation after a scandal, a recall, or another business issue
- A business wants protection against regulatory changes
- A multinational company wants complete coverage concerning political upheaval in other nations
In many of these cases, there just simply is not a legitimate reason for an insurer to step in. There is no way for them to possibly benefit from offering coverage.
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How Insurance Works
This is all due to how insurance works. Instead of always paying directly for something when it happens, like repairs to your home after a damaging storm or medical treatment for an illness or injury, you pay for an insurance policy that offers greater protection against such events.
When you apply for such a policy, an insurance company tries to analyze a number of factors and a lot of different data. They have teams of actuaries that do their best to figure out what kind of risk the company would be assuming.
In most cases, they determine that the risk is an acceptable one. They can evaluate the situation and make changes to a policy based on the people covered or other factors. We can take a closer look at some examples:
Car Insurance Policies
An insurer can look at the drivers being insured and determine some risk. Are they young? Do they have many years of driving experience? What kind of car are they driving? They can decide what kind of risk this policy poses and adjust parameters accordingly.
Commonly, a younger driver is going to get charged more for insurance because they are considered more of a risk. A driver with multiple accidents on their record could see higher premiums as well. A sports car might cost more to insure than a minivan due to the former’s higher risk of theft. These are all calculations being done with the express purpose of assessing risk.
Along those same lines, something like hurricane coverage could also be evaluated by insurers in the same way. There is some risk of a homeowner needing to use their coverage, but if an event is not seen as inevitable it is doubtful that an insurer would consider most people and homes to be an uninsurable risk.
Before changes to the law, this was something that was especially prevalent in the health insurance industry. Premiums for similar plans could differ based on who was being insured. A younger, healthier person would pay less than an older person or someone with a chronic disease. This was all due to the insurer’s risk assessment.
When an Insurer Will Not Cover You
Unfortunately, sometimes an insurer will look at you, do the math, and decide that they should not insure you. This is most likely to happen when you are trying to get coverage against some of the other uninsurable risks mentioned above, but it can also happen to those who are applying for things like car insurance. It was also common in the health insurance industry before changes in the law.
If the insurer considers something like complete protection of your reputation or protection against all regulatory changes an uninsurable risk, that is one thing. However, you are required to have car insurance by the state of Indiana. What do you do if multiple insurers will not insure you?
In Indiana, this is solved with a specialized program that some refer to as a “high risk” pool. A state-sponsored market, sometimes called a “residual market,” is created, allowing high-risk drivers to find the coverage that the law requires them to have. The marketplace is supported by an organization known as the Automobile Insurance Plan Service Office (AIPSO).
Coverage is going to be more expensive through such a marketplace, but you will be able to get into compliance with state and local laws.
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If You Have Questions About Accidents or Insurers
If you have more questions about uninsurable risks or have been injured in a car accident, do not be afraid to reach out to our law office. Contact Sevenish Law Firm, P.C. today and let us assist you. We specialize in personal injury cases and we can answer all of your questions now.