N.C. Legislative Committee Examining Auto Insurance Rate Methods

North Carolina’s automobile insurance rates are among the country’s lowest, but a special pool covering motorists for hundreds of thousands of vehicles doesn’t work very well, industry officials told lawmakers Wednesday.

A General Assembly committee met for the first time to consider changing the way the state sets car insurance rates. The panel also wants to make sure dangerous drivers are paying their fair share for coverage.

“Is the regulatory system we have in place the best system that we can have?” asked Senate Majority Leader Tony Rand, D-Cumberland, co-chairman of the Joint Study Committee on Automobile Insurance Modernization.

Rand assembled the committee in response to two bills he filed last year to change how automobile insurance rates are determined and disclosed. Insurance Commissioner Jim Long, a committee member, and consumer advocates opposed the changes. The committee will make recommendations in time for the General Assembly session in May.

One of Rand’s bills would have stripped the commissioner of his ability to set automobile insurance rates. Instead of having the insurance industry appeal Long’s rulings, the commissioners would have made him appeal the rates set by companies in court.

“Now, the insurance commissioner is judge and jury. And that’s a concern,” Rand said Wednesday.

Several legislators wanted more information why a high percentage of motorists with clean records are being placed in a high-risk pool called the North Carolina Reinsurance Facility.

Insurers who don’t want to bear the entire weight of covering a motorist who is cited repeatedly in accidents or for speeding send the motorist into the facility, where premiums are much higher but insurance companies share the risk on claims.

A quarter of the state’s cars are insured through the facility. Nearly 70 percent of those have been sent to the facility even though the drivers don’t have records. Speakers told the committee that each insurance company has its own method of determining who goes to the reinsurance facility.

These so-called “clean risk” drivers are charged an amount equal to the maximum rates in the traditional insurance market. But those premiums are inadequate to pay the costs of those motorists by $139 million, according to data presented by the facility.

Drivers who aren’t in the pool must pay a surcharge on their premium to make up the difference. The facility reduced the surcharge last year from 9.8 percent to 2.8 percent.

Long suggested Wednesday that “clean risk” drivers in the pool pay even higher rates to reflect their true potential risk. In exchange, Long said, the surcharge on other drivers would be eliminated.

The commissioner said the state should lower financial incentives that insurers and insurance agents receive for sending an insurer to the pool, which can reach 40 percent of a premium.

Joe Stewart, executive director of the Insurance Federation of North Carolina, representing 14 of the largest insurers in the state, welcomed Long’s surcharge elimination proposal.

“Let companies do what they do well and they’ll make sure that most people are paying the right risk rate that they should,” Stewart said. “Clearly, something else needs to be done to better rate those risks.”

Otherwise, Long defended the current system, with his office pointing out that North Carolina’s average premium of about $600 is ranked in the top 10 of states with the lowest insurance rates.

The system is “the envy of many drivers in other states,” he said. “Many, many companies are writing auto insurance in North Carolina and more are coming in every year.”

Topics Auto North Carolina