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Auto Insurance Markets
For those holding valid Ohio drivers licenses, there are three avenues available for auto insurance:
- The voluntary standard market, where insurance is obtained at competitive rates through a selected insurance company without state assistance.
- The voluntary nonstandard market, where insurance is obtained through a selected insurance company, but with a higher premium, based on higher risk factors such as an imperfect driving record or insuring a specialty vehicle.
- The residual (shared) market, known in Ohio as the Ohio Automobile Insurance Plan (OAIP), is a state plan that guarantees liability coverage for those who have difficulty obtaining insurance through the voluntary market.
Ohio’s strong voluntary market
Nearly all of Ohio’s drivers and their vehicles are eligible for coverage through insurance companies, thus making it one of the most favorable private passenger auto insurance markets in the country. According to a 2004 study by the National Association of Insurance Commissioners, Ohio’s 2003 average auto insurance expenditure was nearly $150 less than the US average (click here for more information).
Due to the competitive nature of writing voluntary standard insurance within the state, it’s advisable to compare the services and rates of various companies and agencies prior to purchasing insurance. According to the Ohio Department of Insurance, there are 961 P/C insurance companies licensed in Ohio.
A.M. Best reports that 407 companies were licensed to write private passenger auto insurance in the Buckeye state in 2004. Only Illinois has more auto insurance providers. Ohio’s total auto premium volume ranks ninth in the nation.
Voluntary nonstandard market
Nonstandard markets were originally developed because of the need to fairly assess policyholders based on their driving records. Now it’s also a niche market for specialized vehicles such as high-powered sports cars and custom-built vehicles.
In recent years the lines between standard and nonstandard markets, and various levels of risk, have blurred. High-risk drivers are finding it easier to secure coverage through insurance companies rather than reverting to state-run pools (also known as residual or shared market) because many insurers also offer insurance specifically geared toward the nonstandard market through separate subsidiaries and/or by adding segmentation (additional pricing tiers). Segmentation allows an insurer to create more categories and better define risk pools by slicing the auto insurance market into multiple segments. There are also specialty insurers whose only business is the nonstandard market.
In 2002 direct premiums written for the nonstandard auto market represented about one-fifth of the total private passenger auto insurance market. According to a report by Conning Insurance Research & Publications (Hartford, CT), premiums written for high-risk drivers totaled $4.4 billion in 1992. A.M. Best data shows direct premiums written in the nonstandard auto insurance market grew nearly seven-fold to $30.6 billion in 2002. In comparison, the total auto insurance market was $88.4 billion in 1992, rising to $143.8 billion in 2002–about a 61% increase.
Nonstandard auto insurers typically use independent agents as their distribution method, although the Web, direct mail and toll-free marketing are distribution methods also employed by insurers.
Residual (shared) market
Each state and the District of Columbia manage a shared market insurance plan. Most are known as Automobile Insurance Plans (AIP). In 43 jurisdictions, including Ohio, where AIPs service the residual market, applicants are shared equitably among all insurers licensed to write auto insurance. The applicants are distributed to insurance companies in proportion to the amount of business each insurer writes in the state. Each insurer services the policyholders as it services its other customers. Other forms of residual market plans include Joint Underwriting Associations, Reinsurance Facilities and State Funds.
According to the Automobile Insurance Plans Service Office (AIPSO), about 2.66 million of the over 173.3 million insured private passenger vehicles in the US were insured through the residual market in 2004, or 1.5%. This is a decrease from the 1.8% of private passenger vehicles insured through state plans in 2003. See the next section for auto plan statistics by state for 2003 and 2004.
Table 1 provides a 2004 premium comparison between the total US auto insurance market and the residual market by line. 1.8% of all direct written premiums for auto insurance in 2004 were from the residual market, a decrease from 2% of all auto insurance direct premiums written in 2003.
AIPSO reports a 5.9% decrease in residual market premiums between 2003 and 2004. Residual market premiums totaled over $3.6 billion in 2003 compared to over $3.4 billion in 2004.
The number of cars insured through state shared market plans can be viewed as a “meter” in determining the availability of voluntary insurance within a state. The smaller the number of assignments in a state’s plan, the greater the number insured through the voluntary insurance market. In states where rates are held down artificially through legislation, more drivers are insured through the involuntary market.
Ohio Auto Plan
Ohio Auto Insurance Plan statistics show that only 12 vehicles (1 private passenger and 11 commercial) of the state’s 12-plus million registered vehicles were assigned to the plan in 2005, making it one of the smallest plans in the country. Table 2 provides OAIP private passenger vehicle activity for 2001–2005. For auto plan statistics by state for 2003-04 click here.
OAIP eligibility requirements include a valid drivers license and a car in safe operating condition. In the plan, each insurance company operating in Ohio is assigned applications in proportion to its auto insurance premium volume.
OAIP private passenger vehicle coverages include bodily injury liability, property damage liability, uninsured/underinsured motorists, uninsured motorists property damage, medical payments, and comprehensive and collision with deductibles. The plan guarantees liability coverage, with most qualifying for additional coverages as well.
Premiums in the involuntary residual market typically start about 50% above the base rates for drivers in the voluntary market. The poorer the driving record, the higher the rates.
For more information, go to www.assignedriskohio.com.
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Based on 2004 data, Ohio ranks 50th lowest (data includes Washington DC) in terms of residual market written premium volume and 50th lowest in terms of its residual market as a percent of its total auto written premium. The only state that ranks lower in both is Arkansas.
(Automobile Insurance Plan Service Office, AIPSO Facts 2005-2006) |
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