Research & Commentary: North Carolina Auto Insurance

Published June 2, 2011

North Carolina is currently considering several types of changes to its auto insurance regulatory system. Under the state’s unique current system, an industry-controlled rate bureau works with the insurance commissioner to establish a single rate plan for the entire auto insurance industry. The plan guarantees profits to insurance companies, who are permitted to charge less than the high rates offered under the plan but not more. If companies do not want to serve customers under the plan’s rate structure, they can “cede” them to a reinsurance facility that serves more than 20 percent of the state’s drivers. (Sixty percent of all of the nation’s drivers in such “residual” auto insurance markets are in North Carolina.)

Insurers don’t like the way the system works, sending large numbers of customers into the residual facility, so they are pushing for reform. One proposal, backed by the major insurance trade association in North Carolina, makes changes around the margins of the current system by allowing insurers to file for “upward deviations” (rates higher than those established under the bureau plan) and make other changes. Another proposal, backed by several major insurers and a major national trade association, would abolish the rate bureau altogether, expand the number of rating factors used, and move toward a system of modified “open competition.”

Proponents of the reforms cite the current system’s high rates for lower-risk drivers, the large size of the state’s residual market, and the fundamental unfairness of a system that ensures profits for auto insurers. Those who oppose the reforms note North Carolina’s auto insurance rates are the same as or lower than those in nearby states, that the system attracts large numbers of insurers, and that limits on the rating factors insurers can use provide fairer rates.

The following documents examine the auto insurance system in North Carolina and the current proposals for reform.

North Carolina’s Auto Insurance System: Still Unfair, Still in Need of Improvements
This second edition of the John Locke Foundation’s North Carolina Auto Insurance study examines the problems with North Carolina’s insurance market and recommends reforms.

North Carolina in a Nutshell: The Current Environment
This issue overview from examines the current auto insurance system in North Carolina and highlights several areas in need of reform.

N.C. Needs New Auto Insurance Policy
In this op-ed published in the Carolina Journal, Eli Lehrer contends state insurance regulators need to raise rates for bad drivers and lower them for good ones. Lehrer also recommends ending the unfair practice of guaranteeing profits for private insurers

Insurance Chief Fights Bill to Curb his Role
The Charlotte Observer discusses proposed legislation that would change the powers of the state insurance commissioner and the possible effects on North Carolina’s insurance market.

Legislation Promises Auto Insurance Rate Reform
This article from the Roanoke-Chowan News Herald discusses proposed legislation that would change the state’s rate bureau and driver subsidy.

The Dirty Little Secrets of North Carolina’s Auto Insurance Regulation
Steve Pociask of the American Consumer Institute criticizes the North Carolina Rate Bureau, saying the system protects insurance companies instead of encouraging price competition.

Foul Play—Lobbyists, Lawmakers Try Muzzling Insurance Watchdog
This editorial from the Fayetteville Observer opposes reform to the state’s auto insurance system, arguing the system already leads to low rates and that limiting the power of the insurance commissioner is a mistake.

Auto Insurance Long Overdue for a Change
This article from the Fayetteville Observer responds to the “Foul Play” oped, countering that the current system hides the surcharges it imposes and is both anti-consumer and outdated.