It’s time to tune up N.C.’s system
Friday, June 27th, 2008
By Staff
WASHINGTON - Few can doubt that North Carolina Insurance Commissioner Jim Long relishes the fight he's about to get into with the auto insurance industry. When he faces off with the industry-run N.C. Rate Bureau on Monday, he'll demand what he calls an auto insurance rate cut of 20 percent, while the industry will ask him for what it will call a 13 percent increase.
Given that Long both serves as hearing officer and "prosecutor" with regard to the state's insurers, there's little doubt that he'll decide to order a "cut" and, in so doing, cap his final year in office with an act that will cement his reputation as a populist champion who keeps insurance rates down. The image of North Carolina's gentlemanly insurance commissioner facing down a corporate-style rate bureau that serves big out-of-state companies makes for good political theater. But for all the bluster, it's not clear that this auto insurance system helps the state.
SOME BACKGROUND: Although they provide a framework for setting insurance rates, the government-mandated rates the commissioner and the industry fight over have a direct impact on very few drivers. In fact, they simply serve as a price ceiling: individual insurers set policy rates for most drivers and charge about 70 percent of them less than the government rates.
Other drivers — those for whom no insurers will write coverage within the government-set price cap — end up in the rather ominously named "North Carolina Reinsurance Facility." Although nearly invisible to the quarter of North Carolina residents who end up in it — they still get statements and claims service from private insurance companies — the Facility's current structure raises insurance premiums for almost everyone in the state.
While the worst drivers, those with serious accidents and multiple tickets, pay Facility-set rates that correspond to their relative riskiness and cover their own expenses, drivers who pose significant risks but haven't accumulated serious violations — think 18-year-old boys with red sports cars — receive a subsidy from all of the state's other drivers. (more…)
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