Insuring the Uninsurable - Workers Compensation's Residual Market

Having workers compensation (WC) coverage is generally required for all employers by statute. But what happens when employers cannot obtain coverage due to their size, newness, loss history, or type of hazardous business? In these cases, they may enter the “residual market.”

The residual market, also known as the assigned risk market, is something of a safety net for employers and employees alike. Each state’s residual market is managed by either a State Fund, Joint Underwriting Association, Assigned Risk Reinsurance Plan, NCCI’s Workers Compensation Insurance Plan (WCIP or Plan), or an alternative mechanism.

This article describes the structure of the residual market, including NCCI’s role as a Plan and Pool Administrator, and presents countrywide residual market summary statistics.

NCCI as the Plan Administrator

Currently, NCCI is the designated residual market plan administrator for 22 jurisdictions. As the plan administrator for these jurisdictions, NCCI is responsible for a variety of functions, including:

  • Application processing
  • Eligibility determination for insurance
  • Assignment of risks
  • Oversight of the servicing carrier selection process

The Plan Administrator role can also include administration of a reinsurance pooling mechanism (aka Pool Administrator). NCCI’s role as the Pool Administrator is described further below in this article.

Structure of the Residual Market

Under the NCCI WCIP, every carrier that writes WC insurance in a state must also provide coverage for businesses written through the residual market. These carriers often are given the choice to participate as a (1) reinsurance pool participant or (2) direct assignment carrier.

Reinsurance Pool Participant: Based on its voluntary market share in the state, a reinsurance pool participating company provides proportionate reinsurance on residual market policies written by “servicing carriers.” Servicing carriers accept assignment of pool risks in exchange for a servicing carrier allowance—paid to them to offset the expenses associated with writing and servicing the WC policy. All insurance transactions on these policies are ceded to the reinsurance pool through the reinsurance pooling mechanism.

Servicing carriers are selected through a competitive bid process. The selection process may vary by jurisdiction and depends on state-specific regulatory requirements. NCCI conducts the bid process in many states, with the state’s regulatory authority responsible for ultimately selecting the servicing carriers. This process enables the regulatory authority to select the most qualified carriers at the most competitive price to service the residual market in its state—while minimizing the impact on policyholders.

Direct Assignment Carrier: The carrier is authorized by the state regulatory authority to directly write and service the residual market business—as it does with its other WC policies. The carrier does not participate in the reinsurance pooling mechanism (Pool) and is not reinsured by the Pool. It chooses to participate in the Plan by receiving assignments and retaining the risk associated with such coverage.

Here is a quick reference chart summarizing the two options:


NCCI as the Reinsurance Pool Administrator

NCCI provides administrative services for reinsurance pooling mechanisms for 26 jurisdictions, including the five pools below. The services provided include:

  • Managing the quota-share reinsurance agreements
  • Financial operations
  • Oversight of servicing carrier premium collection and indemnification activity
  • Collection and validation of pool data
  • Actuarial services for each pool

The five pools NCCI currently services are:

  • National WC Reinsurance Association NFP (currently composed of 23 jurisdictions)
  • Massachusetts WC Assigned Risk Pool
  • Michigan WC Placement Facility
  • New Mexico WC Assigned Risk Pool
  • Tennessee Reinsurance Mechanism (TRM)*

*Tennessee (TN) is part of the National Pool starting 7/1/2015 and has its own pool (TRM) for the runoff of former TN policies with effective dates ranging from 1/1/1998 through 6/30/2015.

Residual Market Depopulation Programs

A small residual market is the hallmark of a healthy workers compensation system. Helping employers move from the residual market to the voluntary market serves to “depopulate” the residual market. To achieve this goal, NCCI has developed three depopulation programs for NCCI Plan-administered states.

Voluntary Coverage Assistance Program (VCAP® Service): Attempts to find voluntary market coverage for employers before they enter the residual market. After carriers identify their underwriting criteria, risks are matched and forwarded to the carrier to be considered for coverage.

Take-Out Credit Program: Provides additional incentives for carriers to remove risks from the residual market and write them in the voluntary market. The program provides carriers with credits against their otherwise-calculated voluntary premium basis, which is used to determine a carrier’s required degree of participation in the residual market.

Residual Market Expiration List: To identify potential business that carriers may wish to consider writing voluntarily, this list provides residual market policy information for those policies set to expire within the next year.

Residual Market Statistics

Since 2014, residual market pool premium volume has remained stable at approximately $1 billion. A stable residual market is an indication of a healthy WC system—one in which employers can readily find coverage in the voluntary market.


The workers compensation residual market premium share for NCCI-serviced pool states has also been consistent since 2014—generally hovering between 7% and 8%.


In recent years, the residual market combined ratios have been near the breakeven point of 100. When compared with the more mature years, the combined ratio observed for the most recent, incomplete policy year is comparatively higher due to its relative immaturity. In the past, the combined ratio for the incomplete policy year improved over time as premium became fully earned.



The Residual Market page on is a great resource for residual market information: markets

For ease of navigation, the page is structured in sections, including Tools, Guides/Brochures, Publications/Reports, Plan Administration, Pool Administration, and the Learning Center.

​This article is provided solely as a reference tool to be used for informational purposes only. The information in this article shall not be construed or interpreted as providing legal or any other advice. Use of this article for any purpose other than as set forth herein is strictly prohibited.