Auto Insurance, shift your focus: Auto Industry Contract Changes

Auto insurance isn’t what it used to be. Over the last few years, insurance companies have made major changes to how they evaluate risk, rate drivers, and, most importantly, pay claims. Many of these changes aren’t widely discussed, but they could have serious financial consequences if you’re caught off guard.

The most significant shifts involve permissive use rules, non-rated drivers in a household, and garaging location requirements. If you’re not paying attention, these changes could affect your coverage—or even leave you without coverage when you need it most.

Let’s break down what’s happening and what you need to do to protect yourself.

Permissive Use Rules Have Changed—And You May Not Be Covered

There’s a common belief that if you let someone borrow your car, their insurance will cover them in an accident.  In reality:

• Your insurance follows your car. If someone gets into an accident while driving your vehicle, your policy is the primary coverage that will pay out first.
• Their insurance is secondary. If the damage exceeds your coverage limits, their policy may step in—but only after yours is exhausted.

For years, insurance companies covered permissive use drivers without much issue. But recent contract changes have made it riskier than ever to let someone drive your car—especially if that person actually lives in your household.

Many insurers have quietly changed their policy language to exclude coverage for accidents caused by a non-rated driver (a driver who lives in your home but isn’t listed on your policy).

• This means that if someone has been living in your house for more than 60 days, drives your car and isn’t listed as a rated driver, your insurance may deny a claim for physical damage if they are driving.
• They may still pay liability claims up the policy limits if it is a covered loss
• They will likely drop you as an insured which will affect your future pricing with a new carrier.  Many standard market companies won’t insure a dropped insured which can leave you surplus lines carrier as your only option. 

Why are insurers doing this? Losses. They’ve taken massive financial hits from unreported drivers in households—especially young drivers between 16 and 20 years old. These drivers are statistically higher-risk, but if they’re not added to the policy, the insurer isn’t collecting the appropriate premium for that risk. To cut their losses, insurers are cracking down.

The Long-Term Cost of Not Adding a Young Driver

If you’re a parent of a teen or young adult, you might be tempted to leave them off your auto policy to avoid higher premiums. But there’s a hidden consequence that can cost them far more down the road.

When a child eventually moves out and applies for their own insurance, insurance companies look at their insurance history as long as they have been a licensed driver. If they haven’t been on an auto policy since they were 16, they’ll be classified as a previously uninsured driver.

What does this mean?

• Higher premiums—sometimes double the cost of a standard policy for up to 1 year or longer depending on the carrier
• A tougher time getting approved by standard market insurers.

Garaging Location Matters More Than Ever

Another change that’s catching people off guard is Garaging location accuracy.

Insurers have always used where your car is parked overnight as a key rating factor. But with fraud and misreporting on the rise, they’re cracking down on inaccuracies—and increasing pricing and dropping household when the reported garaging location isn’t correct.

This is not usually an intentional error by the insured, but this does not absolve them of responsibility nor prevent the insurance company from taking action. 

Common mistakes are often made in:

• Divorced households where a person is court ordered to insure a former spouses car
• College Drivers With Cars away at school
• Children of divorced parents who live at a parents house who is not insuring the car

What You Should Do Right Now

With these changes taking effect, it’s important to review your policy and make sure you’re not exposed to unnecessary risk.

1. Check your listed drivers – If someone in your household has a drivers license, they need to be listed as a rated driver—even if it raises your premium.
2. Confirm your garaging location – If your vehicle is parked somewhere other than your listed address, update your policy to reflect it before you file a claim.
3. Talk to your insurer if you use your car for business – If you’re using a personal auto policy for business purposes, you could also face a denied claim. Make sure you have the right coverage.

These aren’t small tweaks—they’re changes that can have huge financial consequences if you’re not paying attention.