North Carolina amendment would allow auto insurers to compete
While the amendment to S. 180 does not go as far as legislation considered and defeated earlier this year that would have allowed insurers freedom to adjust rates, so long as they were within a flexible rating band of 12 percent, it would move in the direction of competition by allowing companies to opt out of the North Carolina Rate Bureau that currently determines rates collective. The North Carolina Department of Insurance would retain authority to approve or deny any filed rates.
“North Carolina is unique among the 50 states in that auto insurers collude to set terms and rates for a one-size-fits-all product through a state-mandated cartel,” R Street Senior Fellow R.J. Lehmann said. “The result is a system in which roughly one-fifth of all drivers can’t get coverage from a private insurer, representing more than 80 percent of the residual market drivers nationwide.”
S. 180, which earlier this year passed the North Carolina Senate unanimously, would address one of the major drawbacks of the system, by permitting insurers to offer some “optional program enhancements.” The change would grant North Carolina drivers access for first time to certain products and discounts that long have been available in other states, such as pay-as-you-drive insurance or accident forgiveness.
However, Lehmann noted the bill, as drafted, does not fulfill the goals set out last year by the Legislative Research Commission’s Committee on Automobile Insurance Modernization, which was chaired by S. 180 sponsor Sen. Tom Apodaca, R-Henderson. In its final report, the committee recommended the General Assembly craft legislation that would transition “to a system more reliant on free market principles that reduces the population of the (North Carolina Reinsurance) Facility.”
“It’s hard to call any system in which bureaucrats get to approve or reject rates ‘free market,’ but companies crafting their own rates is clearly more market-oriented than a Soviet-style collective determining them for everyone,” Lehmann said. “North Carolina’s insurance regulators collected $44 million in fees and assessments from the state’s insurers in 2011, but spent only $33.5 million on regulation. Certainly, with that extra $10 million, they could move into the 21st century and hire some actuaries to review companies’ rates individually.”
S. 180 is currently before the state House Committee on Commerce and Job Development. If it passes, it will move on to the House Insurance Committee.