Why Nonstandard Auto Is More Critical Than Ever

Customers, insurance carriers and their distribution need nonstandard auto protection for drivers now more than any time in history.

Although some carriers have declined to cover higher-risk drivers in the past, that could change, partly as a result of economic turmoil caused by the COVID-19 pandemic. Early in 2020, both consulting firm McKinsey & Co. and BMS Group, a reinsurance broker, predicted that the U.S. could see a surge in the market for nonstandard auto insurance.

On January 4, Allstate Corp. bought nonstandard auto insurer National General Holdings Corp. for about $4 billion in cash. Allstate scaled its auto insurance business as COVID-19 crushed traffic on roads and reduced claims. National General reported about $5.6 billion in gross written premiums in 2019, with nonstandard auto policies accounting for 44%.

Another noteworthy deal, which was completed on the last day of 2020, was State Farm’s purchase of 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.

Let’s examine why a renewed focus on this type of insurance is important for customers, carriers and distribution. We’ll start with the key part of this equation: the customer.

The Customer

According to IBISWorld, the market size of the U.S. automobile insurance industry is approximately $311 billion in 2021. Estimates vary regarding the prevalence of nonstandard coverage. Various experts say it makes up anywhere from 20% to 40% of premiums for personal auto insurance.

Just because one family member has driving issues shouldn’t knock out the entire family unit from getting the type of protection they need.

Those issues can include a DUI, multiple accidents, SR-22, being recently nonrenewed from a preferred policy and poor credit — factors that can prevent drivers from qualifying for preferred policies/rates.

The average household today has multiple vehicles and often multiple drivers. They expect and demand a “one-stop shop” for all their insurance and financial needs. This includes providing protection, even when the household account is not a preferred risk.

The Carrier

Until recently, most of the largest carriers focused on the “preferred market.” A few of the leading carriers have had affiliate companies/brands to provide nonstandard solutions for their customers. Other preferred carriers tried to provide a “near-standard” option, only to get clobbered in many instances.

Progressive and Geico are examples of companies embracing the nonstandard market with expertise pricing, thus providing customers with sustainable protection solutions. However, most carriers are looking to form strategic alliances or to purchase existing nonstandard carriers as partners. The customer has spoken: carriers must provide a “one-stop shopping experience.” Not doing so opens the door to competition.

Distribution

Finally, increasing the focus on nonstandard coverage can benefit distribution’s ability to provide unrivaled service.

Whether advisors are employee-led, contractor-led, brokers, firms, agents or team members, the way forward is to provide unrivaled service, advice and product solutions.

Most practitioners would not want to try to make a living on nonstandard auto only. But ignoring it altogether means a significant missed opportunity. The firm owners, brokers and agencies that have a laser focus on the economics business realize they must provide real solutions for all of their clients, even in situations that are complex, difficult and risky.

Providing nonstandard service and solutions not only wins new business, it also sustains relationships. Great relationships lead to referrals and additional opportunities. To provide unrivaled service requires that we focus on factors other than price. If you do not want price to be the only issue, you must separate yourself from the competition. Offering nonstandard coverage when your competition does not is one way to leap ahead.

The nonstandard auto market has never been more important. As our great industry retools, this is one priority that needs to be at the top of the list as we serve our customers.