April 29, 2021
Nonstandard Auto Insurance’s Key Role
Customers, insurance carriers and their distribution need nonstandard auto protection for drivers now more than at any time in history.
Now, more than at any time in history, customers, insurance carriers and their distribution need nonstandard auto protection for drivers.
Although, in the past, some carriers have declined to cover higher-risk drivers, that could change, partly as a result of economic turmoil caused by the COVID-19 pandemic. Early in 2020, both the consulting firm McKinsey & Co. and the reinsurance broker BMS Group predicted the United States could see a surge in the market for nonstandard auto insurance.
In July 2020, Allstate Corp. announced it would buy nonstandard auto insurer National General Holdings Corp. for about $4 billion in cash, a deal that is set to be completed early this year. With National General reporting about $5.6 billion in gross written premiums in 2019 (with nonstandard auto policies accounting for 44% of that), Allstate is scaling up its auto insurance business at a time when the coronavirus has crushed traffic on roads and reduced claims. In September 2020, State Farm, America’s largest property and casualty insurance provider, announced it would buy nonstandard insurance provider Gainsco for about $400 million in cash, another deal expected to be completed early this year. It’s State Farm’s first acquisition of another insurance company in its 98-year history.
So why is a renewed focus on this type of insurance is important? Well, let’s start with the most important part of the equation first: the customer.
According to IBISWorld, the market size of the U.S. automobile insurance industry is estimated to be $311 billion in 2021. Estimates vary regarding the prevalence of nonstandard coverage; some experts say it makes up 20% of premiums for personal auto insurance, while others estimate it to be 30-40% of the auto insurance market.
Customers need nonstandard coverage availability and premiums to protect their families. One family member having driving issues (a DUI, multiple accidents, SR-22, being recently nonrenewed from a preferred policy and poor credit) shouldn’t knock out the entire family unit from getting the type of protection they need and from qualifying for a preferred policy/rate.
Today, the average household has multiple vehicles and multiple drivers. More than ever, people want a carrier and an advisor/firm to represent them on everything. They expect and demand a one-stop shop for all their insurance and financial needs. This includes, but is not limited to, providing protection even when the household account is not 100% a preferred risk.
See also: How to Engage Better on Auto Insurance
Now let’s look at how a focus on the nonstandard market can benefit carriers.
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 a nonstandard solution for their customers. Other preferred carriers dabbled in or 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 and are models of how to provide customers with a protection solution that is sustainable. However, most carriers are currently looking at strategic alliances or are purchasing existing nonstandard carriers as partners. The bottom line is that the customer has spoken, and companies need to provide a one-stop shopping experience going forward. Not providing such a solution opens the door to the competition.
Finally, let’s look at how increasing the focus on nonstandard coverage can benefit distribution’s ability to provide unrivaled service.
Whether advisors are employee-led or contractor-led, are brokers, firms, agents or team members, providing unrivaled service, advice and product solutions is the way forward. While there will always be an element of transactional sales, providing a meaningful and consistent customer experience is the winning strategy.
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 their clients, even in situations that are complex, difficult and risky.
Providing nonstandard service and solutions not only wins new business, it sustains relationships. And we all know great relationships lead to referrals and additional opportunities. Providing unrivaled service requires focus on factors other than just price. Offering nonstandard coverage when your competition does not is one way to leap ahead.
The nonstandard auto market has never been more important. It’s no longer a one-off. As our industry retools, nonstandard auto needs to be at the top of the list as we serve our customers.