What Is Nonstandard Auto Insurance?

Drivers are usually grouped into one of three categories when it comes to auto insurance: standard (average and preferred drivers), nonstandard (high risk) and the residual market.

Drivers grouped into the nonstandard auto insurance category have a higher chance of making claims than those who can get standard auto insurance, in the eyes of insurance companies. To compensate for that risk, they’re charged higher insurance rates.

Some insurers might not even cover high-risk drivers.

It’s no surprise that causing lots of accidents will surely push you into the nonstandard category. But you might be surprised at what else can land you in that classification.

What Factors Can Put You in the Nonstandard Category?

Several risk factors can send you down the nonstandard road, although there’s no precise definition of nonstandard auto insurance. Among the risk factors are:

• Driving a high-performance or custom-built car
• Driving a “salvage title” car, meaning it’s been severely damaged or declared a total loss
• Living in a neighborhood with high rates of theft or vandalism
• Being an inexperienced driver (often someone under age 25)
• Being an elderly driver
• Holding a foreign driver’s license
• Having a gap in your auto insurance history
• Buying only the minimum liability insurance required in your state
• Getting involved in a lot of accidents
• Filing numerous claims within a short period
• Racking up speeding tickets and other moving violations
• Being convicted of drunk driving
• Having a poor credit history
• Getting your auto policy canceled or non-renewed

Although it typically comes at a high price, nonstandard auto insurance might lack coverage that standard policies do. For instance, nonstandard coverage may not extend to a person who sometimes borrows your car.

Because of economic turmoil caused by the coronavirus pandemic, the U.S. could see a surge in the market for nonstandard 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 Nonstandard?

Research from data and analytics company Verisk shows nonstandard coverage makes up 20% of premiums for personal auto insurance. Others estimate it to be around 30% to 40% of the auto insurance market.

A study released in 2018 by the Missouri Department of Insurance found that areas of the state with large minority populations and lower incomes had greater concentrations of motorists rated as high-risk policyholders.

In June, the Consumer Federation of America complained that when auto insurers base premiums on socio-economic circumstances, including lower credit scores, they disproportionately harm Black drivers. The group said one of the factors that contributes to Black drivers paying more for auto insurance is that they’re more likely to purchase coverage from a nonstandard insurer.

Top States for Nonstandard Auto Insurance

Not surprisingly, some of the largest states also have the most premiums going toward nonstandard auto insurance. California, Texas and Florida are the biggest states for nonstandard auto insurance, according to A.M. Best.

Having a Nonstandard Insurance Past Can Haunt You

For drivers trying to move into better rates, a history of nonstandard auto insurance can still be costly. A study released in 2017 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 nonstandard insurer than by State Farm or other primary competitors.

Three hypothetical 30-year-old female drivers in the study were the same, with perfect driving records, except that one of the drivers was switching from State Farm and the two others were moving from a nonstandard insurer.

The 20-city study compared quotes from seven major insurers. Among the companies that didn’t hike rates based on a driver’s previous insurer were Liberty Mutual, Progressive and State Farm.

How To Move From Nonstandard To Standard Auto Insurance

Some factors that put a person into the nonstandard category can’t be helped—such as being an inexperienced driver, being elderly or living in an area judged to be high risk for theft.

But no one needs to be stuck forever in the nonstandard category because of their driving record or credit. If you know what landed you in the nonstandard category—whether it’s your driving record or your credit—you’ll know what needs to be repaired in order to get standard rates again.

Allstate and State Farm Enter the Nonstandard Auto Insurance Market

Allstate said in July that it’s buying nonstandard auto insurer National General for about $4 billion in cash. The deal is set to be completed in early 2021. National General reported about $5.6 billion in gross written premiums in 2019, with nonstandard auto policies accounting for 44%.

In September, State Farm agreed to buy nonstandard insurance provider Gainsco for about $400 million in cash. It 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 Nonstandard Auto Insurance?

Many insurance companies offer auto insurance quotes for nonstandard car insurance. Among the most recognizable names are:

• Acceptance Insurance
• Alfa Insurance
• Bristol West (part of Farmers)
• Dairyland
• Direct Auto Insurance
• Gainsco (recently acquired by State Farm)
• GEICO
• Kemper
• Mercury
• National General (recently acquired by Allstate)
• Progressive
• Safe Auto
• The General

The Last Resort: The Residual Market

There is a category below the nonstandard market: The residual market, also called the “assigned-risk pool.” This is for drivers who are unable to buy insurance because they’re declined for coverage by standard and nonstandard auto insurers. Generally any auto insurance agent can help you make an application to your state’s residual market.

The vehicles insured in a state’s assigned-risk pool typically make up less than 2% of a state’s total because drivers are able to get coverage elsewhere. But there’s one notable exception: North Carolina, where about 30% of vehicles are insured through the assigned-risk pool.

All auto insurers in a state are usually required to take a percentage of residual market drivers, based on the company’s size in the state.

The residual market is in place to make sure that all drivers have access to some form of auto insurance. Premiums here will be higher than both standard and nonstandard insurance options.