In what type of market must all insurance companies in a state participate?

In a shared market, also known as a residual market, all insurance companies within a state are mandated to participate to ensure that coverage is accessible to individuals who may otherwise be unable to obtain insurance due to high risk or other factors. This type of market is essential for providing essential coverage to high-risk individuals or businesses that standard markets might reject or avoid.

The shared market essentially acts as a safety net, allowing individuals who cannot find insurance through typical providers to still secure necessary coverage, helping to promote wider risk-sharing among insurers. This ensures that high-risk policyholders do not remain uninsured, supporting overall market stability and adherence to regulatory requirements.

This framework differs from markets like the free market, where participation is voluntary, and insurers can choose whom to cover based on risk assessments. Similarly, substandard and specialty markets cater to specific niches or classes of risks that are not accommodated in the broader market, but they do not mandate participation by all insurers in the state. Thus, the shared market plays a critical role in providing insurance access and maintaining market function for those at higher risk.