Competing auto insurance bills split industry groups

dranii@newsobserver.comMarch 12, 2013 

The state’s one-of-a-kind system for regulating auto insurance rates has divided Republican legislators, insurance companies and insurance agents alike.

That explains why, in recent weeks, leading Republicans have introduced competing bills to implement changes in the regulatory system that each have their own roster of industry supporters.

Both sides contend their bills, which are still in committee, would be best for consumers.

But there’s no doubt which side is favored by the state’s chief regulator, Insurance Commissioner Wayne Goodwin.

He lambasted one approach as “a wide-ranging proposal to blow up the system” that would destroy the built-in protections that consumers currently enjoy and lead to higher rates. But he praises the competing legislation as a “targeted approach” that would preserve the existing system while introducing more flexibility for insurers to offer innovative products.

It remains to be seen what impact the opinions of Goodwin, a Democrat, might have on a legislature where both houses are dominated by Republicans.

Second attempt at reform

A bill to revamp the way the state regulates auto rates was introduced two years ago but never made it out of committee.

The latest effort, SB 154 – the bill that Goodwin denounces – is sponsored by a group of legislators that includes Sen. Wesley Meredith, a Fayetteville Republican and co-chair of the Senate insurance committee. It calls for a drastic overhaul of the current system in which the N.C. Rate Bureau submits an overall rate request for the industry that must be approved by the insurance commissioner.

A companion bill, HB 265, whose sponsors include Rep. Tom Murray, R-Morrisville, was introduced in the House last week.

The bills would allow auto insurers to set their own rates as long as the aggregated annual increase was less than 12 percent.

“Consumers would benefit in the long run by having the free-enterprise system work,” said Bob Rosser, a spokesman for a coalition of insurers and industry groups that support the bill calling itself FAIR NC, or Fair Automobile Insurance Rates for North Carolina.

The measures also would eliminate impediments to the introduction of discount programs available in other states and end what proponents argue is a “hidden tax” that about 74 percent of policyholders pay to subsidize the cost of providing liability coverage for “risky drivers.”

That subsidy currently amounts to 4.3 percent of annual liability premiums, or roughly $15 to $17 for the average auto policy, according to the Insurance Department.

Among others, FAIR NC includes State Farm, Allstate and Geico – which rank second, fourth and fifth in market share among the state’s auto insurers – and the Independent Insurance Agents of North Carolina, which represents more than 650 insurance agencies.

Stuart Powell, vice president of insurance operations and technical affairs for the agents’ group, contends that the current system “is rigid and a little bit on the inflexible side and not as actuarially sound as we think it ought to be.”

“We’re the only state in the union that has a system like ours,” Powell said. “Every other state has a market-based system.”

Powell trusts that competition would ensure that rates stay low. “If you want to jack your price way up ... you are going to run everybody over to your competitor,” he said.

Apodaca offers competing bill

Last week, Sen. Tom Apodaca, R-Hendersonville, countered with legislation of his own, SB 180 and 181, that would retain the current regulatory system while introducing a few tweaks.

SB 180 clears the way for insurers to introduce innovative products, with the insurance commissioner’s approval – addressing one of the issues that supporters of the opposing bill have raised.

SB 181 would clarify the law to prevent drivers 19 and older from having to pay extra if they lack proof that they’ve been driving at least three years. The current law, although prohibiting setting rates based on age, allows insurers to charge more for inexperienced drivers – a provision that was aimed at riskier teenage drivers but ends up affecting older drivers who move here from elsewhere and can’t prove they’re experienced drivers.

Apodaca is the other co-chair of the Senate insurance committee. He’s also chair of the Senate rules committee, which decides which bills move forward and where they go.

Supporters of Apodaca’s approach include a host of insurers including Nationwide and N.C. Farm Bureau, No. 1 and No. 3 in market share, respectively, as well as the Professional Insurance Agents of North Carolina, a smaller agents’ organization, and AARP.

Goodwin is on board, too. “I commend greatly Sen. Apodaca’s legislation,” he said. “His proposals are a more targeted approach to reform.”

Rates remain relatively low

Supporters of Apodaca’s bills argue that with rates in North Carolina already low – seventh in the nation, according to data from the National Association of Insurance Commissioners – a more radical approach is unwarranted.

“Companies are making profits and folks are getting good prices, too,” said Steve Carroll, executive vice president and general manager at the N.C. Farm Bureau in Raleigh. He said arguments about letting the free market prevail don’t hold water when motorists are required by law to purchase insurance.

Doug Dickerson, AARP’s state director, said his organization compared average auto insurance rates for drivers over age 65 in North Carolina cities such as Raleigh and Charlotte with those of three other Southern cities: Atlanta, Richmond and Columbia, S.C. AARP found that rates in the other cities were hundreds of dollars higher.

Likewise, Jay Whittington, president of the Professional Insurance Agents, anticipates that the FAIR NC-backed bill would lead to higher rates without oversight from the insurance commissioner.

Although that would benefit insurance agents who are paid on commission, he said, his organization opposes the measure anyway because “we want to do what is best for the consumer.”

One organization that could be affected by the legislation, the state-created Rate Bureau, isn’t taking a position on the bills.

“Our job is just to carry out the letter and intent of the statutes,” said Ray Evans, the bureau’s director.

Ranii: 919-829-4877

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