In the early days of the automobile, there were no requirements for motorists to buy insurance, and insurance companies were free to insure only those who met their underwriting criteria. The financial consequences of the increasing number of automobile accidents became apparent as car ownership grew. States began passing laws making the possession of automobile liability insurance a practical necessity for most motorists.
Under financial responsibility laws, those who didn’t have coverage faced the loss of their right to drive if they were unable to pay for damages resulting from an accident they caused. The dilemma facing the insurance companies then was how to satisfy the legal, social, and economic needs for automobile insurance in an equitable manner.
The insurance industry’s solution was to establish a mechanism in each state to provide coverage for those drivers who were unable to obtain insurance in the voluntary market. These mechanisms formed the residual market. To obtain coverage, each applicant must meet eligibility requirements.
The residual market consists of those consumers who are unable to purchase automobile insurance through the voluntary market due to a variety of factors, such as their driving history or status as first-time drivers. The first residual market mechanism was established in New Hampshire in 1938. By 1959, all states had established a residual market mechanism for applicants.
AIPSO was formed in 1972 as a department within the Mutual Insurance Rating Bureau (MIRB), which served the insurance industry, including the residual market. In 1973, AIPSO — headquartered in New York City — succeeded the MIRB and commenced operations as a separate entity focusing on providing products and services to the residual market. In 1984, the organization moved its national headquarters to its present location in Johnston, Rhode Island. AIPSO is a national organization that serves local customer needs through its network of offices. Approximately 250 employees staff AIPSO's home office and its six regional offices located throughout the country.