An overhaul needed in the auto insurance system in North Carolina


shutterstock_25610398The auto insurance system in North Carolina badly needs an overhaul as the system that was created during the 1920’s was at one point in time very popular across the country. However, now North Carolina is the only state which has maintained its unenviable position of being in this bureaucratic system since then.

Hence, the Senate Bill 490 was introduced recently to help create a framework to provide fair rates to their consumers. In the rest of the 49 states, the rates are developed by each insurer and then filed with the government which is later implemented. This is done independent of one another and helps create a fiercely competitive atmosphere.

However, in North Carolina, all the insurance companies’ pool in their data and the rate requests are filed by the Rate Bureau for the whole industry which takes up a lot of time and resources. These rates are then reviewed by the insurance commissioner who then puts a cap on the rates and thereby restricting the insurance companies to charge premiums over and above the set rate. The insurance commissioner is hence found to be consumer friendly.

The rate caps are creating quite a problem as there is always someone who has a bad driving record. In such instances, the rate caps prove to be a hindrance if the premiums exceed the prescribed limit. In such cases, the insurance companies will not insure them. So, where do these people go for their insurance? Hence, under such circumstances each state will have to have a state-run insurance plan for those drivers who are not accepted by the voluntary insurance market who cannot price the policy adequately.

The state-run plan is termed the Facility and it is huge. In fact, the Facility is almost four times the size compared to all the Facility markets in the rest of the 49 states and the District of Columbia put together. According to experts, a regulatory system that is functioning well such as the state’s Facility plan must not exceed 5% of the overall market. The North Carolina Facility insures around 30% of the state’s drivers. It is the single largest insurer in the state. But the surrounding states do not face similar problems as they have all dumped these systems decades ago. In fact Georgia has 41 cars that are insured in its facility while Florida has 283, South Carolina has only 2, and Tennessee has 96. It clearly shows that something is wrong in the North Carolina system.