Insurance rules favor companies over consumers

by Dan Way, Carolina Journal, September 8, 2015.

Despite recent legislation easing some restrictions on the marketplace, North Carolina’s rate-setting structure for car insurance is little more than a government price-fixing scheme that hits consumers in the wallet while protecting the profits of some insurance companies, a consumer advocate contends.

“North Carolina is the only state that has this unique regulatory system” in which the nonprofit, unincorporated North Carolina Rate Bureau recommends proposed premium rates to the elected state insurance commissioner, said Stephen Pociask, president of The American Consumer Institute Center for Citizen Research in Washington, D.C.

“A few insurers like the current system in North Carolina because it prevents competition. The current Rate Bureau price-fixing system preserves their dominance,” Pociask said. “Price competition is a key to getting lower prices and better services. Collusive prices are not the lowest prices, ask OPEC.”

Nationwide is the No. 1 writer of auto insurance in only one state — North Carolina. Pociask says Nationwide prefers the Rate Bureau concept because it does not have to compete for customers when nearly all companies have similar rates and plans, and can maintain its top dog status year after year as a result.

State Insurance Commissioner Wayne Goodwin takes exception to such contentions.

“We have one of the most competitive markets in the country,” with 170 firms writing auto insurance, Goodwin said, conceding that the top 10 firms write about 75 percent to 80 percent of policies. “We were considered the third most stable automobile insurance market, at least as of a few years ago.”

Goodwin said “study after study after study, over many years [shows] North Carolina has on average some of the lowest premiums on automobile insurance in the country.”

North Carolina has the last remaining insurance rate bureau in the nation, covering auto, homeowners, and workers’ compensation. Most of its board members represent insurance companies licensed in North Carolina.

The Rate Bureau serves as a mega insurance company. It aggregates data from all insurers in the state, and presents a rate cap request each year to the Insurance Department that all insurers must abide by. It last requested a rate hike in 2008 to take effect in 2009.

“Most people would look at that and say it’s collusion,” Pociask said. “That’s what’s called price fixing.”

The Rate Bureau system recommends a price cap favorable to all insurance companies’ profit-making ability, Pociask said.

Thus it creates a disincentive for insurers to compete against one another by offering significant good-driver discounts, accident forgiveness, disappearing deductibles, and other consumer-friendly options available in the other 49 states where insurance companies individually seek approval of their plans and prices, he said.

Pociask said there are other anti-consumer elements to North Carolina’s auto insurance market. Chief among them is a surcharge few drivers realize they are paying because the General Assembly passed legislation preventing it from appearing on the insurance policy declaration page.

“If you’re a good driver in the state, you’re paying a hidden fee that is used to subsidize a more risky driver who’s insured by the reinsurance facility, essentially the state government,” Pociask said.

That means an experienced driver with no violations and no accidents is paying the fee to subsidize consumers who insurers deem to be higher risk for a variety of factors, some of which have nothing to do with driving records.

“You’re being punished for being a good driver, and you’re encouraging bad driving” by subsidizing risky drivers, Pociask said.

North Carolina’s Safe Driver Incentive Plan is a “horrible” and “punitive” program, he said. It assesses driver license points for moving violations and accidents, with steep automatic insurance rate increases far above what other states charge for the same driving misbehavior, he said.

Goodwin countered Pociask’s contentions, notably the lack of discounts.

“We don’t block discounts, we don’t block the add-ons,” he said. “Whenever they file them we approve them,” and to date some 2,000 different types of discounts and optional programs have been approved.

He said he pushed this year for House Bill 288, which was signed into law by Gov. Pat McCrory. It allows, as in other states, an individual insurance company to bypass the Rate Bureau and present an enhancement option directly to the commissioner’s office for auto and homeowner’s insurance. Between 30 and 40 submissions have been received since July 1.

“I’m a reformer, but I’m also a realist. And I’m a former legislator, and I know that to get things through sometimes you need to take bites of the apple at a time. And that’s what we’re doing,” Goodwin said.

Rather than “blowing up the system almost all at once” as some legislators and insurance companies want, causing premiums to jump dramatically for some drivers, and creating instability in the market, Goodwin said he prefers incremental, methodical change.

He agrees that the surcharge should be transparent and appear on the declaration page, along with other information. The General Assembly passed a bill years ago removing it because many people thought it was optional and didn’t pay it, causing their insurance to lapse for nonpayment.

Pociask says North Carolina’s claims to have low auto insurance rates compared to other states is misleading because, among other things, the surcharge every driver must pay is not included in the rate.

Goodwin said, “We actually asked our actuaries to look at that,” and they determined “we’re still among the lowest in the country” even including the surcharge. The surcharge was just over 5 percent this year, and will drop to slightly more than 4 percent in October, or about $20 per policy, he added.

Nationwide corporate spokesman Alison Emery disputed Pociask’s characterization of the company’s success in North Carolina.

“We’re a top competitor in each state where we operate,” she said. The company offers 135 discounts and program options to North Carolina motorists, including safe-driver discounts, fender-bender forgiveness, discounts for military members, minor-violation forgiveness, and discounts for senior citizens. Nationwide “strongly supported” House Bill 288 that would allow even more such options.

Emery said Nationwide backs the state’s Safe Driver Incentive Plan to “give good drivers a break by charging bad drivers more to reflect the increased risk they present. We think it makes sense to rate according to actual driving performance.”

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