non-standard and preferred market

[2bActuary]

If you can share your knowledge with me about non-standard and preferred market in auto insurance industry, please, please do. My direct working experience does not cover that, but I am so willing to learn.

[Wigmeister General]

Preferred market refers to drivers who are considered to be low risk.

Nonstandard market refers to drivers who are considered to be high risk.

[Maine-iac]

I've usually seen it interpreted as

Preferred = normally decent risk you want to write
Standard = Almost preferred, but has some strike against it (youthful driver, one minor accident, etc.)
Non-standard = as bad as it gets without actually being in a JUA/Facility/assigned risk pool

[Wigmeister General]

I defer to my higher authority -- Maine-iac. She's a bit north of me, particularly in personal lines.

[Been There Done That]

That's the uninformed underwriters' point of view. The actuaries' point of view should be:

There are three classes of insureds with varying loss cost, and we have priced each of these appropriately.

Within each of these classes the informed underwriter should try to pick the best risks within that class. No class is "good", and no class is "bad" from an actuarial point of view, provided that adequate rates can be charged.

[jets fan]

No class is "good", and no class is "bad" from an actuarial point of view, provided that adequate rates can be charged.

That's a big IF in some states.

[ahow]

I've usually seen it interpreted as

Preferred = normally decent risk you want to write
Standard = Almost preferred, but has some strike against it (youthful driver, one minor accident, etc.)
Non-standard = as bad as it gets without actually being in a JUA/Facility/assigned risk poolThese do not apply to Commercial Auto, do they? Would these be comparable to Experience and Schedule Mods for Comm Auto?

[2bActuary]

As far as I know about personal auto insurance law in MA, where only downward deviation is allowed on uniform rate approved by commissioner of DOI, shall I conclude that in MA non-standard class tends not to be rated adequately and preferred class tends to be overcharged. Or, rating is just a net zero game. If we want to make it favorable for one class, that means we have to penalize some other to make it even.

[Colymbosathon ecplecticos]

But that won't work, because I will only write the overpriced one. The class with the artificially low rate will experience supply shortages.

[Maine-iac]

What you end up with is preferred writers, and non-standard writers. Although the individual carriers will write a few policies in the other classes, they basically end up concentrating on one, so that they can fairly rate the bulk of the business based on that experience. Then if the state imposes maximum deviations by tier, it doesn't affect much of the business.

[ahow]

What you end up with is preferred writers, and non-standard writers. Although the individual carriers will write a few policies in the other classes, they basically end up concentrating on one, so that they can fairly rate the bulk of the business based on that experience. Then if the state imposes maximum deviations by tier, it doesn't affect much of the business.Wouldn't this create a large amount of anti-selection if you are in a hard market?