General Auto Insurance Markets

General Auto Insurance – Voluntary and Involuntary Markets

The auto insurance market is divided into several different “markets,” as follows: the voluntary market, which in turn is made up of the standard market and the “non-standard” market, and the involuntary (or shared) market.

Hundreds of different general auto insurance companies, operating in different ways (direct sales, through agents, through mail order, etc.) and offering different types of auto insurance policies at different prices actively compete in America today.

In the voluntary market, these companies can choose the applicants known as “risks” (because what is insured is the risk to which they are exposed) they want to accept or reject from all the people who apply to them for insurance. Some companies are very selective and accept only people with perfect driving records. (One company even restricts new customers to those with personal recommendations from existing customers.) Others sell to a broad range of customers. People who represent normal insurance risks and the companies that cover these risks are known as the standard market.

Some insurers in the voluntary market either specialize in or also offer coverage to customers who represent a degree of risk beyond the routine or normal. These include drivers with poor records, owners of specialty cars, such as expensive sports or “performance” cars, or people who want higher limits of insurance coverage than they can obtain in the standard market. These risks and the insurers that cover them are known as the non-standard market.

For some car owners with poor driving records, or those in high risk groups for other reasons, insurance may be impossible to find in either the standard or non-standard market. Even non-standard companies reject some extremely high risk applicants. High risk drivers may also find that the cost of insurance in the non-standard market is prohibitively expensive.

To accommodate these drivers, each state has set up some form of auto insurance plan in which individual insurance companies are required to participate to provide coverage to people who would otherwise be unable to obtain insurance. Because the participation of insurers in these plans is not voluntary, the plans are referred to as the involuntary market.

Auto insurance is usually a package made up of several kinds of coverage. One standard package includes six basic types of coverage: bodily injury liability, property damage liability, medical payments insurance, uninsured and underinsured motorist coverage, collision and comprehensive coverage.

Liability laws require a driver to pay for injuries caused to other people or their property by the negligent operation of a vehicle. Liability insurance covers the costs of such injuries and damage up to the limits specified in the general auto insurance policy.

Bodily Injury Liability. Bodily injury liability insurance pays for claims against the policyholder resulting from injuries to pedestrians, persons riding in other cars or passengers in the policyholders car.


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