What is the Residual Car Insurance Market?
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Generally, a motorist seeking an auto insurance policy is able to shop around and find coverage from one of the many companies competing to gain customers in the free market. Unfortunately, there are some instances where applicants are considered a "high risk" and therefore, the residual market was created. Set up by state regulators, the residual market provides a way for drivers that may be riskier to insure with a way to obtain policies by spreading risks among the licensed insurers within a particular state.
The residual market is also known as "non-voluntary" or "shared" due to the fact that state insurance regulators create "plans" that assign drivers with certain risk factors, which cause coverage denial to insurers based on market share. This means that if a particular company writes a large percentage policies in a state they will be required to accept more motorists with elevated risks than that of smaller companies.
These programs have been developed due to the fact that most states require that [auto insurance policies](./policy.html are in effect at all times while operating an automobile and such plans can help keep risky motorists from driving without the proper coverage. Unfortunately, the cost of coverage for motorists in need of such a policy is costlier than the premiums in the normal marketplace.
Although insurers may charge increased rates to "assigned" policyholders, the premiums rarely cover the amount of losses incurred by the providers for covering such drivers. In turn, this causes carriers to raise premiums of all consumers to compensate for losses suffered in the residual marketplace. Fortunately, on a national level, the residual market only covers around 2% of vehicles and may not have such an adverse effect on the average driver.
Drivers who may Need the Residual Auto Insurance Market
There are many factors that may have consumers shopping for car insurance coverage in the residual market. One such factor would be the driver's history; this includes tickets, accidents and claims record. Individuals who have accumulated a number of convictions for certain violations such as multiple offenses of driving under the influence of drugs or alcohol may find it difficult to locate a company that will voluntarily offer a policy and will need the assistance of the state's insurance plan to get covered.
In addition, those who have filed a numerous of claims may be in a similar situation and can be denied due to the high chance that the insurer will suffer a loss. Denial of policies caused by a driver's record and claims history is often in control of the motorist. Consumers may be able to climb out of the high risk pool by keeping driving records clean for three years, at which point they may be entitled to lower rates.
Individuals may not necessarily be denied strictly because of past mistakes and other factor may be cause for coverage denial. An unsafe vehicle, age or even place of residence can be ground for an auto insurance company to deny an applicant. Every state is different when in the way these plans are regulated and what can constitute a company to deny a motorist. Consumers should be sure to contact the state's insurance regulator if it is felt that coverage denial was given unfairly.
The residual market should be the absolute last resort for a driver who is looking for an automobile policy. One should be sure to complete car insurance comparisons and obtain a quote or at least apply with every possible company prior to settling for a high rate and ensure that an insurer will not offer coverage voluntarily.