R Street welcomes efforts to modernize N.C. auto insurance
RALEIGH, N.C. (Feb. 28, 2013) –- The R Street Institute today welcomed new legislation that would reform North Carolina’s outdated and inefficient price controls for auto insurance.
Under the terms of S.B. 154, sponsored by Sen. Wesley Meredith, R-Fayetteville, auto insurers could, beginning in 2015, voluntarily opt out of the North Carolina Rate Bureau, through which companies currently set their rates collectively. Auto insurers that opt out would be allowed to set their own rates in a competitive market, with the ability to raise or lower rates by up to 12 percent annually.
Larger rate increases or reductions would require approval of the insurance commissioner, who also still could deny rates if they are excessive, inadequate or discriminate unfairly against any group.
The change also would permit insurers that opt out of the rate bureau system to make use of additional rating factors that are currently prohibited. This would permit companies to offer discounts to the least risky drivers and to introduce innovative new products –- such as discounts to people who provide real-time driving data to their insurer -– that are available in other states.
“The current system in North Carolina is outdated and it discourages competition and innovation,” R Street Senior Fellow R.J. Lehmann said. “It guarantees profits for insurance companies, which is one reason some companies have opposed reforms. We welcome changes that would give consumers more choice of products, as well as discounts for the least risky drivers.”
The bill also would phase-in risk-based rates for higher risk drivers, who currently have their insurance premiums subsidized by less risky drivers. To avoid significant increases in rates to any drivers, the phase-in would be scheduled over a five-year period.
North Carolina is the last state to use a “pure” rate bureau system, which has left it with the largest number of policyholders who cannot get coverage through the traditional admitted market. More than 20 percent of North Carolina’s policyholders –- roughly 1.5 million drivers — get coverage through the residual market, representing more than 80 percent of the residual auto insurance market nationwide.
