Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
Drivers are generally grouped into one of three categories when it comes to car insurance: standard (average and privileged drivers), non-standard (high risk) and residual market.
In the eyes of insurance companies, drivers grouped into the category of non-standard car insurance are more likely to make claims than those who can get standard car insurance. To compensate for this risk, they are charged higher insurance rates.
Some insurers might not even cover high-risk drivers.
It’s no surprise that causing a lot of accidents surely pushes you into the non-standard category. But you might be surprised what can land you in this classification.
What factors can place you in the non-standard category?
Several risk factors can send you down the non-standard road, although there is no precise definition of non-standard car insurance. Among the risk factors are:
- Drive a performance or custom car
- Drive a “salvage” car, which means it has been badly damaged or declared a total loss
- Live in a neighborhood with high rates of theft or vandalism
- Being an inexperienced driver (often someone under 25)
- Being an elderly driver
- Hold a foreign driving license
- Have a gap in your auto insurance history
- Purchase only the minimum liability insurance required in your state
- Be involved in many accidents
- File many claims in a short period of time
- Accumulation of speeding tickets and other moving violations
- Convicted of driving while intoxicated
- Have a bad credit history
- Getting your auto policy canceled or not renewed
Although usually offered at a premium, non-standard car insurance can lack coverage compared to standard policies. For example, non-standard coverage may not extend to someone who sometimes borrows your car.
Due to the economic turmoil caused by the coronavirus pandemic, the United States could see an increase in the market for non-standard auto insurance, consulting firm McKinsey & Co. noted in an April report. BMS Group, a reinsurance broker, made a similar prediction in March.
How many drivers are considered non-standard?
Research from data and analytics firm Verisk shows that non-standard coverage accounts for 20% of personal auto insurance premiums. Others estimate it at around 30-40% of the car insurance market.
A 2018 study released by the Missouri Department of Insurance found that areas of the state with large minority populations and lower incomes had a greater concentration of motorists considered high-risk policyholders.
In June, the Consumer Federation of America complained that when auto insurers base premiums on socioeconomic circumstances, including lower credit scores, they disproportionately hurt black drivers. The group said one of the factors driving black drivers to pay more for car insurance is that they are more likely to buy coverage from a non-standard insurer.
Top States for Non-Standard Auto Insurance
It’s no surprise that some of the largest states also have the highest premiums for non-standard auto insurance. California, Texas and Florida are the top states for non-standard auto insurance, according to AM Best.
Having a non-standard insurance history can haunt you
For drivers trying to get better rates, a non-standard car insurance history can always be costly. A 2017 study by the nonprofit Consumer Federation of America found that Allstate, American Family and Farmers often hit good drivers with premiums that were 9% to 15% higher if they were previously covered by a non-standard insurer than by State Farm or other primary insurers. competitors.
Three hypothetical 30-year-old female drivers in the study were the same, with perfect driving records, except one of the drivers left State Farm and the other two left a non-standard insurer.
The study of 20 cities compared quotes from seven major insurers. Among the companies that have not raised rates based on a driver’s former insurer are Liberty Mutual, Progressive and State Farm.
How to switch from non-standard car insurance to standard car insurance
Some factors that put someone in the non-standard category cannot be helped, such as being an inexperienced driver, being elderly, or living in an area deemed to be at high risk for theft.
But no one needs to be stuck forever in the non-standard category because of their driving record or their credit. If you know what put you in the non-standard category, whether it’s your driving record or your credit, you’ll know what needs to be fixed in order to get standard rates again.
Allstate and State Farm enter non-standard auto insurance market
Allstate said in July it was buying non-standard auto insurer National General for about $4 billion in cash. The deal is expected to close in early 2021. National General reported approximately $5.6 billion in gross written premiums in 2019, with non-standard auto policies accounting for 44%.
In September, State Farm agreed to buy nonstandard insurance provider Gainsco for about $400 million in cash. This is State Farm’s first acquisition of another insurance company in its 98-year history. The deal is expected to close in early 2021.
Who sells non-standard auto insurance?
Many insurance companies offer car insurance quotes for non-standard car insurance. Some of the more recognizable names include:
- Insurance Acceptance
- Alfa Insurance
- Bristol West (part of Farmers)
- dairy country
- Direct auto insurance
- Gainsco (recently acquired by State Farm)
- National General (recently acquired by Allstate)
- automatic safe
- The general
The last resort: the residual market
There is a category below the non-standard market: the residual market, also known as the “assigned risk pool”. This is for drivers who cannot buy insurance because they are denied coverage by standard and non-standard car insurers. Typically, any auto insurance agent can help you make a claim in your state’s residual market.
Vehicles insured in a state’s assigned risk pool typically represent less than 2% of a state’s total because drivers may obtain coverage elsewhere. But there is one notable exception: North Carolina, where about 30% of vehicles are insured through the assigned risk pool.
All auto insurers in a state are generally required to take a percentage of the residual market drivers, based on the size of business in the state.
The residual market is in place to ensure that all drivers have access to some form of car insurance. Premiums here will be higher than standard and non-standard insurance options.