The road to higher insurance rates

Editorial by Charlotte Observer, June 18, 2014.

Would you sign up for a good driver discount if doing so resulted in your insurance premium going up? If your family members were offered military or good student discounts, but the overall family premium cost more, would you take the deal? (If so, we’d love to talk to you about your newspaper subscription...)

This get-a-discount-but-not-really proposition is what insurance companies are again attempting to sell in North Carolina. The Good Driver Discount Bill, which is backed by companies including State Farm and Geico, would allow insurers to offer a greater range of products here, but it also would change how our auto insurance rates are set. That’s not a good deal for N.C. drivers.

Currently, auto insurance companies doing business in North Carolina have to agree to a rate increase or decrease each year with the N.C. Rate Bureau. The insurance commissioner, currently Wayne Goodwin, reviews those requests and decides if the rate change (usually a hike) is justified. The result of this unique system: North Carolina’s average auto insurance rates are the lowest in the South and sixth-lowest in the country.

Insurance companies would have you believe that N.C. drivers could do even better if the Rate Bureau just got out of the way and let insurers offer more discount programs. But the state already has approved about 2,000 such programs, and Goodwin supports legislation that would allow for even more – without dismantling the Rate Bureau structure. Insurers aren’t interested in that.

What they are interested in is charging more, which is what happened in South Carolina, where rates went up 23 percent after the state made a similar change in the 1990s. In North Carolina, reform might be especially bad news for some of the estimated 1 million drivers who are considered riskier by insurance companies. Most of those drivers are younger and have clean records, and the state allows the rest of us to be charged a small fee so that these “risks” don’t have to pay exorbitant premiums. Change the system, and insurers could make more of a profit off them, as they do in other states.

Proponents of that change have long said that it also would force insurers to compete on price, resulting in drivers getting better deals. But insurers already can compete that way – the Rate Bureau doesn’t set an artificial floor, just an artificial ceiling.

That’s price-fixing, say those who prefer a free-market approach. But government inserts itself into commerce in countless, worthy ways. Some of them protect business, such as trademarks and copyrights, and some protect consumers. The Rate Bureau structure has done the latter for decades. Those who would dismantle it don’t have the interests of North Carolina’s drivers in mind.