What term describes insurance markets or facilities designed to assume risks generally unacceptable to the normal insurance market?

• A. Residual Market
• B. Reinsurance Market
• C. Catastrophe Pool
• D. Primary Market

Answer: (A)

Residual markets are created to absorb risks that the ordinary insurance market won’t insure. They exist as state-supported mechanisms, such as assigned risk plans or insurance pools, to ensure access to coverage for applicants whose risk profiles are deemed too high or too uncertain for the standard market. Premiums and terms in these markets are adjusted to reflect the increased risk, and coverage is often treated as a last-resort option when private insurers won’t provide it. This concept fits the question because it specifically describes markets or facilities aimed at taking on risks that the normal market would not accept. In contrast, the reinsurance market transfers risk between insurers, catastrophe pools handle large-scale events among insurers, and the primary market refers to the regular market where most policies are sold.