Assessment insurance is a policy design where a policyholder may pay extra amounts if claims exceed prior pricing assumptions.
Insurance mechanics
Unlike fixed-premium contracts, assessment insurance includes a contingency mechanism.
The process is typically specified in by-laws, policy conditions, or collective agreements for the insurer’s membership group.
Claims and pricing logic
This structure protects insurer stability in volatile loss years, but it shifts part of the premium uncertainty to the insured.
Practical example
If a mutual auto insurer prices a class at $4,000 per policy but actual loss costs rise to $4,700, the insurer may call an assessment equal to the shortfall based on membership shares.