Visualize: Insights that power innovation

Visualize: Insights that power innovation

Setting a new standard in nonstandard auto

By Sandee Perfetto, Jared Smollik  |  January 7, 2020

The nonstandard auto (NSA) insurance market covers a diverse range of drivers, from those with poor driving histories or foreign driver’s licenses to those that struggle to keep consistent coverage or carry liability-only policies. These drivers are typically considered to be more challenging to rate than drivers in the standard auto insurance market.

Carriers writing nonstandard insurance may face persistency challenges from policyholders who fail to maintain regular premium payments. According to Verisk research, while nonstandard policies account for 20 percent of the premium for personal auto insurance, they represent 40 percent of the industry’s new business activity thanks to continued churn. Not surprisingly, combined ratios for this segment have been consistently north of 100. It’s been so challenging that 2018’s ratio of 102.2 percent was viewed as “a big improvement,” according to Carrier Management. Nevertheless, AM Best’s 2019 Market Segment Report claims that direct written premiums for this segment continue to grow.  

To improve the quality of nonstandard auto underwriting, insurers need solutions specifically tailored to the unique needs and challenges of this market. The Verisk product team has launched a number of targeted and innovative solutions to assist NSA insurers.

Verisk nonstandard auto solutions

Trend analysis
Verisk has the largest, most comprehensive contributory database of driver data, and we’re leveraging this aggregated data pool to help insurers better understand their nonstandard risks. To do this, we’ve added a new version of the Trend tool available through ISO’s Actuarial and Strategic Data Insights. The tool is similar to the existing Actuarial Services Trend tool in that it enables insurance writers to estimate future loss costs, create custom trend calculations, combine experience across states, and examine the market through a broad base of aggregated data. The nonstandard Trend product, developed from direct feedback from individual NSA carriers, offers several unique features, including data on earned premium trends and the ability to identify liability-only policies. It will be available to carriers that commit to contributing their data to the aggregated pool.

Telematics
Vehicle telematics and usage-based insurance (UBI) solutions are also well suited to the nonstandard auto market. It’s generally easier to price risk when you know the real-world behavior of the drivers you’re insuring. Drivers in this market also benefit because telematics can help unsafe drivers get back into the good graces of the standard auto market by demonstrating safer driving habits. With approval in 43 jurisdictions as of 2019 and more than 100 billion miles of driving data—and counting—our telematics scoring system has already been deployed by nonstandard auto writers to help rate new business applications and understand how driving behavior affects pricing.

Nonstandard auto insurance forms
Already an industry leader in insurance forms with more than 30,000 forms in its library, ISO has filed alternative versions of its personal auto policy forms for the NSA market due to growing needs in the industry. These forms, and the state endorsements that accompany them, are available to ISO Core Lines Services customers and are designed to assist insurers in minimizing the impact of insuring a higher level of risk.

While they’ve been developed for the unique needs of nonstandard writers, the forms share all the hallmarks of traditional ISO personal auto forms. The detailed and carefully vetted language is regularly updated in response to, in part, changing laws, regulations, and court rulings.

ISO is committed to further improving our nonstandard auto forms through your feedback. We’re seeking input from the industry on how to sharpen our policy language to meet the challenges of this market. If you would like a role in shaping the future of nonstandard auto coverage forms, please contact us.

Leading the future of nonstandard auto

While Verisk has built a robust suite of products for the NSA market, the work has just begun. Verisk is committed to leveraging our unique data assets, powerful analytical tools, and deep government and legal expertise to create an even broader solution set that addresses the distinct needs of nonstandard auto carriers.

NSA insurers can contact nsa@verisk.com to share thoughts on how we can continue to innovate in nonstandard auto.


Sandee Perfetto is director, personal lines, auto and farm product development at Verisk. She can be reached at Sandee.Perfetto@verisk.com.

Jared Smollik is vice president of personal lines core products at ISO. You can contact him at Jared.Smollik@verisk.com.