There are many insurance companies in the marketplace that compete among each others to get the consumer dollars. Each of these companies sets its target markets, or the classes of clients that this company has an appetite for. Then a pricing strategy is derived based on company experience in the market, and competitive forces.
In the commercial insurance world, some insurance companies may have certain appetite for insuring liquor stores, or gas stations, for example. Companies that have appetite for certain class of business make less stringent requirements for issuing (underwriting) policies covering that business, and may also cut the premiums to attract more customers. The same thing could be said about the auto insurance companies. Each company has changing appetites for certain classes of customers (ie urban vs suburban, youthful vs mature, single vs married, etc.)
The Chicago area is a good example of markets where you see fierce competition among insurers. Besides its huge population, the Chicago area is known to have large number of undocumented aliens, unlicensed operators, operators with foreign or international licenses, and operators who still drive on permits. An interesting phenomenon pertaining the auto insurance business in the Chicago area is that some companies offer lower premium for unlicensed individuals, including people with permit. This means that a 30 year old married man without a US license can get cheaper insurance premium than a 30 year old married man with the proper driving documents (assuming everything else is the same!!)
Not all insurance companies will insure undocumented operators or operators with international/ foreign driving documents. In the early 2000s, there were very few companies that would take international drivers. Now, there are dozens of companies in the Chicago area alone (mostly non standard companies) that will insure those operators, including the ones that have permits only. Some standard and preferred companies have started their coming to this market.
The rationale behind companies insuring those people is very simple. Insurance is a social need. The fact that someone does not have a US license does not mean that they constitute serious hazard on the road. Some companies, especially the standard companies, will surcharge their auto insurance premiums, perhaps 25% more or less compared with their counterparts who posses proper US driving documents. Companies that surcharge policies argue that since there is no way to check the motor vehicle report (MVR) for those people, they can be posing higher risk that other operators whose driving record is available.
Other companies (mostly non standard) that offer lower auto insurance premiums for the unlicensed/ foreign or international operators look at the matter differently. Unlicensed (including operators with permit), foreign, and international drivers may be less hazardous on the road than their US counterparts. The rationale behind this is the concept of “morale and moral risks” involved in the insurance business.
Moral hazard refers to the situation where the risk from purchasing a policy is higher because of bad faith, hence insured may commit unethical acts such as exaggerating (or even fabricating) their claims. Morale hazard refers to the psychological state of indifference which creates some sort of negligence (or recklessness) because people with insurance feel that things will be OK (its OK to speed because if you crash you have insurance to pay for damages.) Some companies think that foreign & international licensees pose less morale and moral hazards for insurance purposes than their US counterparts, perhaps for fear of getting pulled over by police and arrested or deported if they are undocumented aliens. Notice that the insurance companies are not in business to implement the laws, but are in business to make profit by charging premiums and paying for damages when their clients cause the damages.