A bill that would revamp the way North Carolina regulates auto insurance rates has surfaced again in the state legislature and is once more being opposed by Insurance Commissioner Wayne Goodwin.
Supporters of the bill, including a number of major auto insurers, say the current regulatory landscape is outmoded and needs to be overhauled to increase competition. Goodwin counters that the current system works well and that if the measure becomes law it would enable insurers to raise rates virtually at will.
Legislation that would have curbed the insurance commissioner’s ability to regulate auto rates was introduced two years ago but failed to gain traction. The bills were stridently opposed by Goodwin and were hampered by a lack of cohesiveness within the industry; some insurers supported the legislation and others opposed it.
The industry remains divided over the latest bill, with Nationwide lining up with the opposition.
“We do not believe the people of North Carolina want higher auto insurance rates, more uninsured drivers, a volatile insurance market, or the gutting of the authority of the elected Commissioner of Insurance to protect millions of consumers by rejecting or reducing proposed rate hikes, which is what we believe they would get under this bill,” Nationwide said in a statement.
Nationwide is the No. 1 auto insurance provider in North Carolina with an 18.1 percent market share, according to the Insurance Department.
Senate Bill 154 was filed in the legislature Thursday. A companion bill is expected to be introduced in the House.
Sen. Wesley Meredith, a Fayetteville Republican and a primary bill sponsor, said in a prepared statement that under the legislation “North Carolina drivers will benefit from a more competitive, free-market system that reduces bureaucracy and eliminates unnecessary costs. The government has no business dictating how insurance companies set their rates and has no business requiring them to do so collectively.”
Under state law, the N.C. Rate Bureau submits an overall rate request for the industry that must be approved by the state Insurance Commissioner. North Carolina is the only state with such a system.
A coalition of supporters
A coalition of insurance companies and industry trade groups known as FAIR NC, or Fair Automobile Insurance Rates for North Carolina, is supporting the bill. The coalition includes such companies as Allstate, Geico, State Farm and Farmers Insurance Group, according to its website.
FAIR NC says the bill would preserve the Rate Bureau but would permit insurance companies to opt out and “develop rates on their own.” In either case, according to the group, the Insurance Commissioner would have final authority over rates, including the authority to reject increases considered excessive.
But Goodwin, a Democrat, doesn’t see it that way.
“With this bill, people will pay more for their auto insurance and, as our state Insurance Commissioner, I will not be able to do anything about it,” Goodwin said. “Insurance companies will be able to propose dramatic, double-digit increases year after year and, the way the bill is worded, I will have little to no authority to fight for consumers.”
Goodwin said his interpretation of the bill is that insurance companies could automatically push through rate increases of up to 12 percent “in the aggregate.”
Since that 12 percent threshold is “aggregated for all policyholders,” according to the bill, that essentially means that the automatic increase would be up to 12 percent on average, so it could be much higher for some motorists.
Bob Rosser, a spokesman for FAIR NC, said that Goodwin was misinterpreting the bill and that the intent was not to strip the commissioner of his regulatory authority. Rosser pointed to language in the bill that states the commissioner can reject a filing, following a public hearing, if he determines it be “excessive, inadequate, or unfairly discriminatory.”
Goodwin, however, noted that the bill also states that increases of less than an aggregated 12 percent “shall be presumed not to be excessive, inadequate or unfairly discriminatory.”
“The burden is shifted,” Goodwin said. “It would be impossible, practically, to prevail for consumers the way it is drafted.”
Goodwin also complained the bill would allow auto insurance companies to “discriminate on factors such as age and gender” by charging such groups more. That’s not permitted today.
FAIR NC says that the bill would eliminate what it calls “a hidden tax” that motorists pay to subsidize the cost of providing liability coverage for “risky drivers.” That subsidy, which is in the form of a surcharge, costs the state’s drivers $900 million over five years, according to the group.
“By mandating how insurance companies set their rates, North Carolina stifles competition and forces good drivers to subsidize the cost of insuring risky drivers,” Rosser said in a statement. “Good drivers pay more so bad drivers can pay less.”
Goodwin, however, said the surcharge is minimal on a per-driver basis.
Currently the surcharge amounts to 4.3 percent of liability premiums, or roughly $15 to $17 for the average auto policy, according to the Insurance Department. Beginning April 1, the surcharge will decline to 2.5 percent, or roughly $10 to $12 for the average policy.
Goodwin also argued that, with more than 160 auto insurers providing policies in North Carolina, competition is alive and well in the state.
“We have the lowest average car insurance rates in the South, from Delaware to Texas, and also the lowest on the eastern seaboard,” he said