Auto insurers are looking to change the way rates are set in North Carolina but that’s not going to happen if Insurance Commissioner Wayne Goodwin has his way.
There are several bills pending in the state Legislature that would revamp the way the state sets auto rates and give insurers more latitude — up to 15 and 20 percent —to raise rates.
North Carolina’s auto rate system is unlike any other in the country. All 175 insurers file their rate plans with the North Carolina Rate Bureau, which proposes a statewide base rate on behalf of all companies. The commissioner can then place a cap on rates. Companies can only adjust individual policies by offering discounts.
North Carolina has among the lowest auto insurance rates in the country, according to the National Association of Insurance Commissioners and Insure.com. Insure.com found that comparable policies for a 40-year-old single male driver who commutes 12 miles to work in North Carolina paid $1,154 a year, seventh-lowest in the country, compared to a national average of $1,561.
Goodwin says the current system helps all consumers and those backing changes just want to make more money off North Carolina drivers.
“The bottom line here is this: insurance companies want more of your money. These proposals would no doubt lead to higher car insurance rates,” Goodwin said at a news conference.
Goodwin said the current system “strikes a necessary balance between the consumers’ interest and the interests of the insurance companies. Auto insurers make enough money to keep doing business here profitably and drivers have relatively low rates.”
But car insurers say the current process amounts to price-fixing and it is unfair to good drivers who end up subsidizing bad drivers with records. They say that if insurers are allowed to compete on price, good drivers would benefit.
“Really the best regulator of price is competition,” said David Stoller, a lobbyist for State Farm. “That’s why companies advertise, they want to compete on rates.”
State Farm is one of the members of Fair Automobile Rates for North Carolina, a coalition that includes the National Association of Mutual Insurance Companies. This group is pushing a bill that would eliminate the roles of the state rate bureau and the insurance commissioner in rate-setting and allow insurers to raise or lower their rates by as much as 15 percent per year.
Another industry group, the Insurance Federation of North Carolina, is backing a bill that would grant insurers the latitude to charge rates up to the maximum permitted for high-risk drivers, which is currently 20 percent higher than the rates other drivers pay.
“We support free-market auto-reform legislation because it is fair and it is beneficial to the vast majority of North Carolina drivers who drive safely and pose a lower risk,” said Micaela Isler, regional manager for the Property Casualty Insurers Association of America. “Under the current system, the state’s safest, most responsible drivers essentially subsidize the few who create the greatest risks. These reforms would provide greater balance and fairness for North Carolina’s responsible motorists.”
PCI argues that policyholders in states where insurers are allowed to operate more competitively generally have more affordable insurance, while prior approval systems like North Carolina’s encourage both adverse selection (i.e., higher-risk drivers buying more insurance or choosing lower deductibles) and moral hazard (i.e., drivers having less incentive to mitigate their risk or avoid high-risk behavior), which result in higher claim costs.
According to PCI, the average premium paid by North Carolina drivers has not declined as quickly as the national average. From 2004 to 2008, the average price for liability and physical damage coverage in North Carolina fell 1.7 percent, whereas the average price nationwide fell 6.7 percent.
“Rate reform legislation works, and it would mean more competition and fairer pricing for North Carolina drivers,” Isler said.
In his press conference, Goodwin took sharp aim at the deregulation proposals, claiming they are all about “corporate greed.”
“These proposals are pushed by out-of-state insurance companies who want to make more money off of North Carolina drivers,” he said. “The insurance companies are trying to get the legal authority to charge you higher rates even if you have a perfect driving record.”
Goodwin is getting some support from an unlikely source, Nationwide, the state’s largest insurer.
“Nationwide believes the rate system in North Carolina works well and that there is simply no crisis to address,” said Lee Morton, the insurer’s regional vice president. “Any dramatic dismantling of our current auto insurance rate-making system should be considered with great caution to assure customers don’t suffer unintended negative consequences.”
The Associated Press contributed to this report.