If you have an abysmal driving record, such as a mix of at-fault accidents, claims, speeding tickets and/or DUI convictions, your car insurance options will keep narrowing.
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When an auto insurance company reaches its breaking point with your driving behavior, it can cancel or nonrenew your policy. At this point, you may find it difficult to buy coverage in the standard market. Your next step is to seek an agent or broker to help you apply for coverage in your state's residual market, says John Verruso, director of communication services for Johnston, RI-based AIPSO. AIPSO, the Automobile Insurance Plans Service Office, is a not-for-profit organization providing administration services for auto insurance plans that provide options to high-risk drivers.
The residual market is a state's high-risk insurance pool. When insurers turn their back on you, this is where you buy auto insurance - at super-high prices - until your record improves enough that you can get back out of the pool.
Dropping down the auto insurance ladder
To be eligible for standard auto insurance, you usually must have no more than a couple of minor violations and/or not-at-fault accidents, says Frank Cacchione, CEO of TNC Management Group, an insurance management consulting firm based in Morristown, N.J. Generally you can't have more than one DUI violation within a certain period. You must also currently have insurance.
Standard insurance policies allow a household vehicle to be driven regularly by only two drivers, and aren't available to foreign drivers, Cacchione says.
If your driving history doesn't measure up to the above standards, you can apply for a non-standard auto insurance policy. These policies are designed for people who have racked up four to six minor violations or at-fault accidents, and may also be available if you have two or three DUI violations, and if you don't have existing coverage. Additionally, non-standard policies don't restrict the number of drivers operating the car and don't require the driver to be a U.S. citizen, he says.
But if your driving behavior is what Cacchione describes as "overboard," you're likely disqualified from the non-standard market, too. This might be defined as two DUI violations and several at-fault accidents, he says. Such a record could put you in the residual market in many states. And in states with very stringent regulations, it will take less to land you in the residual market.
Where you live can also be a factor in determining how fast you wind up in the residual market. Some regions have a much higher incidence of auto insurance fraud - such as drivers lying about whether their car is parked in a garage, whether there are young drivers in their households, how many miles they drive to work and other issues that determine insurance rates.
If you live in one of these regions and have a bad driving record, you could be more likely to end up in the residual market, Cacchione says.
The cost of being hated
A non-standard auto policy can be 2.5 to 3 times more expensive than a standard policy, and a residual market policy can be 2.5 to 4 times more costly than a standard policy, he says.
Some drivers move in and out of the residual market. Cacchione says, "There's a percentage who go in, come out, and go back in when they can't find insurance," he says. "They go online and find a non-standard policy. If they get that policy, but then go out and get drunk, have a DUI violation, and lose the insurance from the non-standard provider, they have to go back in the residual market."
But more and more drivers once doomed to the residual market now are able to buy non-standard auto insurance. The residual market continues to shrink as the non-standard market absorbs bad drivers. Nationally, in 1989, 8.9 percent of private passenger premiums were in the residual market. By 2008, less than 1 percent of all premiums were for residual market policies, Cacchione says. Auto insurers may not love these drivers, but they're finding ways to make profit from them.