NC Auto Insurance Modernization Act – An Interestingly Political Fix

Right now there is a bill that is under debate in the NC House of Representatives.  This bill attempts the change the way that auto insurance rates in NC are made, allowing each insurance company to come up with their own rates as opposed to the current system of having the NC Rate Bureau propose maximum rates to the insurance commissioner for approval or denial.  This bill, called House Bill 265, in my opinion, is a step in the right direction and would allow for more of a free market approach to rate making but also includes some proposed changes that might generate huge problems for the auto insurance consumer down the road.  And I am left wondering why our legislature is working so hard to fix our auto insurance system that is stable and competitive, while ignoring the exact same rate making problems for home insurance that is actually causing homeowners in our state such difficulty when they try and buy or even renew home insurance.  Trying hard to fix something that isn’t broken while ignoring a crisis going on around them must just be a talent found only in politicians.

House Bill 265 has at its heart a more free market approach to auto insurance rate making in North Carolina.  And I can certainly support that.  Currently our system of rate making is a two-step process.  First of all, the NC Rate Bureau, an entity owned and supported by all of the insurance companies that do business in our state, proposes maximum rates that could be charged for auto insurance.    These proposed maximum rates are sent to the insurance commissioner who can approve them or partially approve them or even modify them or reject them entirely.  Ultimately then, the insurance companies can charge the maximum rates, or provide discounts from these rates to charge something below the maximum rate.  This works just fine as long as the maximum rates are nowhere near the break even point for the insurance company on that kind of insurance.  In auto insurance the rate that you pay is almost certainly somewhere far below the maximum.  But with home insurance in NC right now, the maximum rates are just too low for most insurance companies to make money.  And if they can’t make money then they leave or they start trying to find ways to reduce coverage.  And getting a rate increase out of an elected commissioner during an election year is nearly impossible.  So the current system can hamstring itself sometimes. 

Right now, the NC, our homeowners insurance marketplace is in crisis. Weather related losses have left insurance companies losing money on home insurance.  Rates have been held down by the insurance commissioner and some insurance companies have left the state entirely while others are cancelling huge blocks of homeowners policies from their books.   To prove a point regarding which rate making process should actually be under the legislature’s wish list for change,  a homeowner in NC will find it very difficult to buy home insurance in North Carolina without also purchasing auto insurance from that same insurance company.  Why?  Well because the insurance company knows that it will make money on the auto while losing it on the home insurance.    

I can support the portion of this bill that allows insurance companies to make their own rates, whatever they may be, for North Carolina Auto Insurance.  I trust that a free and open rate making marketplace will probably generate much better results for all consumers than will one that is dependent on the political will of an elected insurance commissioner.  But I have one huge concern with this new bill.  The current wording would allow insurance companies to develop their own coverage forms for auto insurance.  This could be a huge change from our current law which requires all insurance companies to sell the same auto insurance form.  Differing policy forms could make comparing one auto policy to another unreasonably complicated for the average consumer.  Apples to apples quotes will be a thing of the past, though the real problem could be that most consumers may not realize this.  The dark side of this kind of change is that at least some auto insurance buyers will purchase their insurance based solely on the lowest price offered.  This might mean that they don’t have the protection that they need after an accident happens.  I have been advised by some insurance company personnel that in the states where differing policies are allowed, most insurance companies tend to sell the same basic coverage to everyone.  So this may not be a big concern though the risk to the consumer seems pretty large from my perspective.

There is also one other possible bad consequence of this legislation.   This bill would make insurance company membership into the NC Rate Bureau voluntary.  Might this mean that the large auto only insurance companies would leave the bureau and as a result leave this organization without the funding that it needs to survive?  And if this happens, what then will become of our home insurance market which is currently in crisis due to rates that are too low?  Might  this deepen the homeowners insurance crisis in NC?  These are questions for which I can find no concrete answers.

At Clinard Insurance Group, located in gorgeous Winston Salem, NC, we work hard to help all insurance buyers become informed consumers.  We currently insure thousands of families all across NC and we can help you with any of your insurance needs from home insurance and auto insurance to business insurance or life insurance.  Give us a call, toll free, at 877-687-7557 and we will be happy to put our expertise to work for you to help you find the coverage you want and need at the lowest possible price.