Michigan Property & Casualty Practice Exam

A residual market in insurance serves as a mechanism that provides coverage to individuals and businesses that have been unable to obtain insurance through the standard voluntary market owing to factors such as high risk or prior claims history. This market is often established by state programs to ensure that everyone has access to necessary insurance, despite their risk profile.

In essence, the residual market acts as a last resort for those who have been rejected by insurers in the traditional market, ensuring that they can still secure at least some level of coverage. This is crucial for maintaining the principle of insurability and protecting individuals and businesses from potential liabilities and financial ruin due to unforeseen events.

Other options reflect different concepts in insurance; they do not address the need for a market specifically designed to accommodate high-risk applicants who find it challenging to secure coverage through more traditional means.