High-Risk Insurance: What it is, How it Works

Honest Policy

Honest Policy

Key Takeaways:

  • High-risk insurance is coverage for drivers who are more likely to file claims and get into accidents than the average driver.
  • Several factors beyond your driving history can affect your risk profile as a driver.
  • The more risk you represent to an insurance company, the higher your auto premiums will be.

Questions Answered:

License and registration, please. It sounds polite enough, but that phrase uttered by a police officer can quickly kick off a flood of questions. Was I speeding? Am I getting a ticket? How long will this take? What happens to my insurance premiums? And if this isn’t your first run-in with traffic enforcement, you have even more to worry about — including getting dropped by your insurance carrier because you’re now considered a high-risk driver.

What is high-risk insurance?

High-risk insurance, also known as non-standard insurance, is coverage for drivers who are more likely to file claims and get into accidents than the average driver. Insurance companies evaluate your risk level based on a range of factors, including:

  • The type of vehicle you drive
  • Your driving record and claims history
  • How much you drive
  • Where you live
  • Where you park your car
  • Your age and gender
  • Your marital status
  • How long you’ve been driving
  • Your credit history

Any one of these factors can add to your risk profile. There’s no clear dividing line, though, between standard risk and high risk. This is because each insurer has its own underwriting formula. What you can count on is this: The riskier you are to insure, the more expensive your premiums will be. And if your risk level is too high, some insurance carriers won’t provide you coverage at all.

Reasons you might be a high-risk driver

You’ll know you’ve been labeled “high-risk” if you’ve recently had your car insurance cancelled or you’ve had an insurance application denied. Often, a poor driving record, history of accidents, or a single DUI is the culprit, but there are other reasons an insurance company might not like your risk profile. Here are the common ones.

Your age

Teen drivers and senior drivers over the age of 70 are both more likely to get into accidents than their moderately aged counterparts. For that reason, these two groups are generally deemed “high risk,” even without a history of driving or credit problems.

Credit history

In every state but California, Hawaii, and Massachusetts, an insurance carrier can legally increase your premiums based on your credit history. A NerdWallet analysis finds that drivers with poor credit pay, on average, $1,270 more annually for auto insurance, vs. drivers with good credit. [1]

Coverage lapses

A lapse in coverage doesn’t mean you’re more likely to get into an accident, but it is a sign you’ll cost more to insure than the average customer. Coverage lapses increase the administrative work that’s required for your policy. For example, if the coverage lapsed because you didn’t pay the bill, the insurer probably had to send you a series of reminders and past-due notices. And later, when you do pay, someone has to work with you to reinstate your policy. Those may seem like minor issues, but they make you more expensive to insure than the driver who doesn’t require the extra attention.[2] 

Going forward, other insurers will view your prior coverage lapse in the same light, as an extra expense. In their view, if you’ve let the coverage lapse once, you’re more likely to do it again.

Your car        

Fast, expensive vehicles are normally considered higher risk than family-style vehicles with moderate price tags. And this makes sense. The insurance carrier has more to lose by insuring a sports car worth $75,000, vs. a Honda worth $30,000. That doesn’t mean a cheap vehicle always has the lowest premiums, however. Research by Value Penguin indicates that cars worth $25,000 to $30,000 have lower insurance premiums than cars worth less or more than that range.[3]

What will I pay for high-risk insurance?

As a high-risk driver, you can expect to pay 15% to 250% more for insurance than a low-risk driver. It’s tough to get more specific than that on costs, because each insurer has its own process for assessing risk and setting premiums.

An analysis done in February of 2020 by Carinsurance.com can add some perspective, however. The research quotes rates for a 40-year-old male driver with $100,000 in bodily injury liability coverage per person, $300,000 bodily injury per accident, $50,000 in property damage, plus comprehensive and collision with a $500 deductible. Assuming that driver has two speeding tickets, his insurance premiums are $1,673 on average, which is 36% more than a driver with a clean record. The same driver with no speeding tickets but a single DUI will pay $2,146 in premiums, which is 76% higher than a driver with a clean driving record.[4]

Ways to lower your high-risk insurance premiums

Risk factors like bad credit or driving infractions have a way of hanging around for a while. But you can still take steps to lower your premiums as you’re waiting for that bad stuff to roll off your record. Here are three ideas.

1. Take a defensive driving class

In some states, you can prevent a traffic violation from appearing on your record by taking a defensive driving class. Your insurer might also offer you a premium discount for voluntarily completing a driving course.  

2. Get a different car

If your car is sporty or expensive, consider trading it out for something more subdued. Look for a two-wheel-drive vehicle with safety features (like lane departure warnings), that’s valued between $25,000 and $30,000. Find one you like and then, before you commit, get a quote from your insurer to see how much it changes your premium.  

3. Try a program like Allstate Drivewise        

Allstate Drivewise and Progressive Snapshot use apps to track and rate your driving behaviors. If you don’t demonstrate risky driving practices, like speeding and hard braking, the insurer will offer you a discount on your premiums.

Before you go this route, be sure to understand which behaviors the app will track and what data you’ll be sharing with your insurer. Know, too, that Progressive can use Snapshot data to increase your premiums. Allstate, however, does not increase rates based on Drivewise data.

You can use the Allstate Drivewise app to track your driving even if you don’t have Allstate insurance. You might start there, before you sign up to share your data, to see if you really are driving safely. Progressive has an app called Snapshot Road Test that will monitor your driving for 30 days and let you know if you qualify for a lower rate with Progressive.

How to evaluate high-risk insurance providers

If you have to switch to a high-risk carrier, resist the urge to jump to the first one that offers you coverage — because they’re not all created equal. Rates can vary, as can financial stability and customer service. Dedicate some time to researching your options in these three areas, so you can find the right fit.

1. Comparison shop rates

Premiums on high-risk insurance can vary dramatically from one insurer to the next. Do your homework and shop around. Plan on collecting three to five quotes, or more if the first few quotes you get aren’t similar. Alternatively, you can retain an insurance broker who can look at dozens of carriers to find one that suits your needs.

2. Check financial strength

You can look up the financial strength of an insurance company at FitchRatings.com or Moodys.com. Anyone can search FitchRatings for free. Moody’s requires you to sign up for an account before you search, but the account is free.

These sites track the company’s bond ratings, which can range from Aaa to C. Moody’s ratings of Aaa to Baa3 are considered “investment grade,” which means the company is financially stable and is expected to have the capacity to repay its debts. That’s important, because you rely on the insurer to pay for covered losses so you don’t have to.

3. Lookup complaints

You can research an insurer’s complaint history at the National Association of Insurance Commissioners (NAIC) website. The NAIC tracks complaints against insurers relative to their peers — which makes it easy to see if an insurer has more or fewer complaints than expected, given its size.

U.S. News & World Report and J.D. Power are also good sources for customer service ratings and reviews on insurers. Many other websites publish insurance reviews and ratings as well, but they can be more subjective and less reliable.

Plan ahead

Your insurance premiums may be high today, but they don’t have to be that way forever. If your credit history is pushing your rates higher, put some attention towards cleaning that up. Budget and set up auto payments so you don’t miss due dates. That’ll help prevent coverage lapses, too. If your driving record is the problem, take a driving course and implement what you’ve learned. Get in the habit of heeding posted speed limits and traffic signs. You can also download a tracking app like Allstate Drivewise and follow its recommendations.

The steps you take to clean up your credit and be a safer driver have other financial benefits, too. You’ll avoid late fees and lower the chances of getting into a costly accident. And, hopefully, you’ll spend less time parked on the shoulder, searching through the glove box for your license and registration.

Sources

[1] Glover, L. (2018, March 08). Drivers with poor credit pay higher insurance rates in most states. Retrieved September 25, 2020, from https://www.nerdwallet.com/blog/insurance/car-insurance-rate-increases-poor-credit/

[2] Roy, S. (2020, March 13). Is it bad to let insurance coverage lapse? Retrieved September 25, 2020, from https://www.thetruthaboutinsurance.com/is-it-bad-to-let-insurance-coverage-lapse/

[3] Fitzpatrick, M. (2020, August 12). The cheapest cars to insure in 2020. Retrieved September 25, 2020, from https://www.valuepenguin.com/best-and-cheapest-cars-insure

[4] Kissell, C. (2020, February 19). High-risk driver insurance: How much it costs, where to buy it, what it covers. Retrieved September 25, 2020, from https://www.carinsurance.com/Articles/high-risk-driver-insurance

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