Why I Hate Non-Standard Auto

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If you are new agency, new producer, or have new agents in your office, then this post is for you.

I hate non-standard auto and so should you.

Non-standard auto is a dangerous siren calling out to agents with dreams of easy sales and fast money.

Her call is a half-truth, for as soon as you hook your boat to her rock and enter her lair, the sexy veneer wears off as you see the dangers you’ve entered.

As a new agent, you are hungry and need to produce, and the quickest way to find customers is to reach out to those desperate with the greatest need.  They are the customers with bad credit, no prior insurance, chronic cancel-ers, and dreadful driving records, but they are easy.

You can hang up a shingle advertising to the minimum limit customer, and they will find you, then eagerly tell their friends, but the goldmine you’ve found is a mirage.

Within months, you can write hundreds of policies and the cash flow seems miraculous, until the cancellations ensue, and this is but one reason I hate non-standard auto.

In case you are tempted, here a list of reasons to keep you from building your agency on this shifting sand:

1.  Cash.  Rarely do these customers have checking accounts, and they will load you down with cash.  Soon you will find that 30-50% of your time is spent taking payments preventing you from new sales.  You are making change, and multiple trips to the bank.  The amount of cash you have to keep on hand begins to create a fear of theft.

2.  Endorsements.  The non-standard customer, while seeming to have little risk with low limits and fewer cars than the household account, is endorsement heavy.  They change cars and drivers more than the preferred customer.  People are moving in and out of their house, and cars are breaking so new ones need added.

3.  Billing.  These customers are always on the verge of cancellation, and you may find yourself chasing payments.  If you don’t chase payments, then you will be answering call after call explaining billing nuances and payment amounts.  You may spend minutes on the phone explaining billing, and then never see the customer again.

4.  Referrals.  Like attracts like.  Birds of a feather flock together.  This is where this type of business can become really dangerous.  If you have an established preferred agency, then attracting these customers will begin turning you agency into a non-standard shop.  They will send their friends and slowly your preferred customers will leave as these high maintenance clients eat your time causing you to neglect your best customers.

5.  Profitability.  There is a theory that because the non-standard customer carries lower limits, the potential claim payouts are lower.  This may be true on individual risks, but the frequency of claims and potential for fraud becomes the bigger reality.  Over time, agencies focusing on non-standard auto slowly become unprofitable, and create greater risks to company contracts.

6. Value.  One day you will want to sell your agency or book of business, but there will be nothing to sell.  Non-standard auto creates no equity.  The value of a book of business is based on it’s long-term revenue potential.  Another agent will never pay 1-2 times revenue on a non-standard book, because retention is so low that the revenue will not exist in a year.  At most, you could garner 50% of your revenue.  That is a lot of blood, sweat, and tears without any value to sell at the end of your career.

Take this a warning.  Protect your book.  Protect your customers.  Protect your future.

Do you agree?  Share with your new insurance friends and comment below.



2 Replies to “Why I Hate Non-Standard Auto”

  1. I purchased a failing non-standard auto and title transfer agency about 12 years ago. I did build a commission base of non-standard auto to pay the bills for a few years. I stopped writing title transfers first and I am slowly cutting off quoting non-standard auto walk ins and phone quotes. I like to push the non-standard auto to some companies that are targeting these customers and are better modeled to handle this business.
    I agree with all the reasons to stop writing the non-standard customers. 95% of all my face to face complaints are non-standard auto billing issues. Changing the image of a non-stardard auto shop to a preferred agency offering auto and homeowners is a slow process but just thinking long term value.

    1. I think you are doing the right thing, especially for long term agency value. There is no doubt that nsa creates cash flow and this is very helpful in the early days. Good luck, and I would love to hear about any strategies you do that are successful. Perhaps a guest post or interview in the future?

      So far, what is the most effective step you’ve done to turn the tide?

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