November 13, 2009

Assigned Risk Auto Insurance and Who Has It

A few speeding tickets, a collision, maybe a DUI conviction? One mess up too many and your insurance company will label you high risk, meaning your coverage could be canceled. If you face this issue, you are looking at an expensive problem. Almost every state requires drivers to maintain auto insurance; you do not want to be caught driving without it. If you lose coverage, find out if you can buy a new policy as a “high risk” driver. Many insurance companies offer these non-standard policies; they are expensive but cater to drivers with poor records. However, some drivers have besmirched their records so badly that the voluntary market will not insure them. If several companies turn you down in your quest, you have entered the world of assigned risk auto insurance.

Assigned risk auto insurance is a state-mandated insurance pool for drivers with poor records who cannot obtain insurance from the voluntary market. No state wants uninsured drivers on its roads, so it requires insurance companies licensed in the state to provide minimum coverage for high-risk drivers. The Automobile Insurance Plan Service Office (AIPSO) notes that all states have some form of assigned risk auto insurance. Each state deals with the particulars of its program differently. According to the Insurance Information Institute (III), companies usually provide insurance to a state’s pool in proportion to the amount of business they do in that state. Once drivers enter the pool, they are assigned randomly to an insurer. The company will provide minimal coverage for three years, but it will be very expensive.

Many issues can land you in this situation: multiple speeding tickets, collisions involving property damage or injuries/fatalities, DUI/DWI convictions, lapses of coverage or poor credit. Young drivers, drivers of high performance sport cars or drivers of non-standard vehicles, such as RVs, also may fall into this category, but often are serviced by non-standard policies in the voluntary market. According to AIPSO, the assigned risk market has decreased as more insurers are creating their own non-standard policies for high-risk drivers. In fact, an AIPSO study cited the value of assigned risk policies in 2006 at only 1.2 percent of auto insurance premiums, but that still represents more than $2.2 billion.

When you join the state-mandated pool, you are in the land of “last resorts.” You cannot negotiate the amount you pay for your coverage. However, your rates are still based on the same variables as all drivers: your driving record, your age, what kind of car you drive, etc. During your “probation,” keep your record clean. After three years, you hopefully will be able to move on to buy a standard auto insurance policy on the open market.