Don't let companies wreck state's auto insurance system

Editorial by Wilmington Star-News, May 24, 2014.

North Carolina's auto insurance system is not broken, and consumers should be wary of the "fix" prescribed by a coalition of insurers seeking to change the rules.

The state's average insurance rates are consistently ranked among the lowest in the nation. More than 150 companies write policies in the state. And, say opponents of the proposal, the market is very stable – which is good for customers in the long run.

A bill expected to be introduced in the General Assembly is slightly more palatable than one introduced last year that would have permitted insurers to increase rates up to 12 percent a year without the consent of the insurance commissioner. The new proposal leaves that power in the commissioner's hands, but opponents say that as a practical matter, it would be more difficult for the commissioner and the consumer to compare rates and decide what's fair, and would create smaller customer pools to spread the costs.

The net result would be higher rates for many drivers.

FAIR NC, a coalition of insurers led by State Farm, Allstate, Geico and Progressive that is pushing the changes, says the system is broken and the only thing that can fix it is to allow them to break from the N.C. Rate Bureau that reviews and recommends requests for rate increases, and submit theirs individually.

North Carolina does things differently than just about every other state, but the system has worked so far. What FAIR wants to do, essentially, is to have two systems – one for insurers that want to stay with the rate bureau system, and a separate system for companies that want to do things their own way. They toss out much-publicized carrots such as "good driver discounts" and "accident forgiveness" to sell their bill, claiming it will lower rates for many drivers. But that's not guaranteed.

Not all insurers are on board. A coalition called LowRatesNC includes Nationwide, N.C. Farm Bureau Insurance, GMAC, and consumer groups such as AAA and AARP, which have arms that sell insurance. The group objects to the proposal, as does Insurance Commissioner Wayne Goodwin. They say allowing insurers to opt out would weaken the rate bureau and would eventually tear apart the system that has kept rates and the market competitive.

FAIR is right that North Carolina's point system makes it expensive to have an accident or get a ticket for more than an isolated, minor infraction. The state prescribes some of the highest rate increases for costly accidents and serious violations, such as driving while impaired.

In addition to base rates, customers pay a fee to the Reinsurance Facility, which was created to reduce insurers' liability for claims involving higher-risk drivers. It was a trade-off in the approval of the law requiring that insurers provide policies to anyone who walks through their door.

The group also notes that Goodwin is an elected official, and elected officials have been known to flex their regulatory muscle as a campaign strategy; longtime Commissioner Jim Long was a master at timing his decisions to coincide with an upcoming election, then negotiate a smaller rate increase after he was safe for another four years. That's a point the legislature should address.

Still, consumers should be skeptical, even given FAIR's insistence that North Carolina's system complicates their business operations and that they need more flexibility. Insurance companies are in business to make money. That is an honorable pursuit, but they are not consumer advocates.

Under the current system, companies can and do cut some slack to good customers who have been safe drivers, says Jeff Butler of Able Auto and Cycle Insurance in Wilmington. Butler also sits on the board of trustees of the Reinsurance Facility. He writes policies in several states including North Carolina, South Carolina and Virginia, and thinks the system is working just fine. In his experience, rates are generally better than in those other states. He says he'd probably make more money if FAIR gets its way.

"But," he said, "consumers would lose."

That's reason enough to leave well enough alone.

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