Residual markets are designed to be able to insure risks that are generally not insurable in the normal insurance market. Which option best reflects this statement?

• A. True
• B. False
• C. They insure only homeowners policies
• D. They replace standard markets for all risks

Answer: (A)

Residual markets exist to insure risks that are generally not insurable in the normal insurance market. They act as a backstop, stepping in when private insurers won’t provide coverage due to high risk, loss history, or other factors. These markets are often state-operated or heavily regulated programs (like property FAIR plans or auto assigned-risk pools) that ensure access to insurance by offering coverage under standardized terms and pricing determined within regulatory guidelines. They supplement the standard market rather than replace it, and they cover a range of lines—not just homeowners. So the statement is true.