N.C. legislators look at how car insurance rates are set

Legislators are taking another look at limiting regulation of car insurance rates with proposals that companies say would get rid of a surcharge most drivers pay.

For years, legislators have talked about changing the way auto insurance rates are set. The problem is, there's no agreement on how to do it, or even that anything should change.

North Carolinians pay among the lowest car insurance rates in the nation, and it's a market where more than 160 companies compete.

State Insurance Commissioner Wayne Goodwin argues that none of the ideas legislators are considering would be better for the state's drivers and would just give insurance companies ways to make more money.

"Nothing that's been proposed to date does anything but raise insurance rates for drivers," Goodwin said.

About 1 million drivers - or about one in five - are in a high-risk insurance pool, assigned there by companies who are not willing to cover them at rates approved by the state insurance commissioner. Twenty-five percent of drivers in the pool are considered bad risks and pay higher insurance rates.

But more than 70 percent of drivers in the high-risk pool are considered "clean risk," put in the pool for reasons other than a bad driving history. People who have lost a job, are in the military or have a red car are among those considered "clean risks." By law, "clean-risk" drivers cannot be charged the higher insurance rates, so a surcharge is added to other drivers' insurance bills to cover their costs.

The way it works now, the Rate Bureau submits the overall rate increase request to the Department of Insurance. The commissioner must approve new rates, and they are usually lower than the insurers' original requests.

Some insurance companies are supporting a proposal that would allow them to bypass the N.C. Rate Bureau. Insurers would be able to raise or lower overall rates by 15 percent.

Another proposal would phase out the "clean risk" classification over five years.

The state's high-risk pool is by far the largest in the country. That's a clear sign that the system needs an overhaul, said John McMillan, a lobbyist for the Insurance Federation of North Carolina.

The legislature should eliminate the "clean risk" category so everyone can pay what's fair, he said. Insurance companies would be able to raise rates on clean-risk drivers, but drivers not in the high-risk pool would no longer pay a surcharge.

"Most people would have lower premiums," McMillan said.

A legislative committee studying the issue will hear from insurance company representatives today, but the insurers don't speak with one voice.

Nationwide, the state's largest auto insurer, doesn't want changes to a system it says works well.

"We do not believe the people of North Carolina want higher auto insurance rates, less independent oversight, more uninsured drivers, or a more volatile insurance market - but that's what they likely will get if the proposed legislation becomes law," the company said in a statement.

Sen. Tom Apodaca, a Henderson County Republican who helps lead the study committee, said he isn't sure the system needs changes.

"I don't know if we need to do anything," he said.

Apodaca, who sponsored the bill that would move clean-risk drivers out of the high-risk pool, said he would know better today how committee members will handle the insurance proposals.