Lobbying by NC insurance groups to shrink state’s high-risk auto pool


shutterstock_42331168The two insurance trade groups have been lobbying extensively in the North Carolina legislature to bring in reforms that include an incremental approach to decrease the number of drivers who are in the high-risk auto insurance pool in the state.

There are about 1.4 million members in the NC Reinsurance Facility, which is equivalent to the number of people in the high risk groups of all the other states put together. This report has come from the Insurance Federation of North Carolina, which is a coalition of the largest property casualty insurers in the state.

North Carolina counsel for the American Insurance Association (AIA) John McMillan has testified before the Senate Insurance Committee. He is in favor of the auto insurance reforms that are contained in SB477 this week.

The AIA (property-casualty insurance trade organization), which represents around 300 insurers and writes over $100 billion in insurance premiums each year as well as the Insurance Federation of North Carolina, state that the residual auto insurance market is really huge. According to these groups, the average US residual market is much less than 1%.

In his testimony, McMillan has stated that North Carolina’s residual auto insurance market is over 20 times more than the national average. Hence, he feels that the system in North Carolina is unsustainable as, in all the other states less than a fraction of the motorists are in the residual market.

Apart from that, North Carolina is the only state which has the rate bureau which proposes and fixes the base rate for all the motorists. This is the only state where the commissioner has to approve the rates.

The SB477 will help in gradually removing drivers from the high-risk pool and allowing them to obtain auto insurance coverage from any of the insurers from the private insurance market. This will also allow insurers to go upward towards the facility-approved rates, thus enabling insurers to write policies for motorists to keep them under the fold of the private auto insurance market rather than  become a part of the state’s reinsurance facility, where the rates average at 20% more than the rates that are approved by the rate bureau.

Over a period of time SB 477 will eliminate all the surcharges that are paid by all the drivers in the state and this will cover the shortfall that was attributed to the drivers in the reinsurance facility. These ‘clean risks’ account for 5 to 7% of the driver’s premium.