Revamp needed In NC auto insurance system


shutterstock_36845110The whole auto insurance system in North Carolina needs to be revamped as it undercharges bad drivers, overcharges the good ones or the low-risk drivers, and guarantees profits to the private insurers. This is an unfair practice and this has got to change.

As a result of this there are a variety of government, insurance industry, and advocacy groups which have come forward with plans to modify the system. However, none of these plans are perfect as there are some aspects in the plan that will strip the protections that are offered in the plan, while the others do simply go all the way in changing the whole system. Hence, it is not surprising that Wayne Goodwin, the Insurance Commissioner has stated that there are serious problems with this system.

But despite this Goodwin did not do the right thing by stating that these modifications were all due to ‘corporate greed.’ In fact, the elected representatives, citizens’ groups, and the insurers put together should reach a common consensus and have an agenda that can do away with the profit guarantees for the insurance companies, cuts hidden costs, and encourages innovation.

The auto insurance system in North Carolina is one of its kinds in the nation. Though there are private insurance companies that compete with one another for the insurance policies from their customers, they all start with the same rate plan that has been developed by the Rate Bureau. The operating costs of running this multimillion-dollar organization are then incorporated into the insurance rates for all motorists. While approving this rate plan, the insurance commissioner is supposed to guarantee profits to the companies. If the policy is not found to be profitable, the insurance companies can ‘cede’ it to the government mandated ‘Reinsurance Facility’ which shares its staff as well as personnel with the Rate Bureau while losing money writing most of the policies.

In order to make up for these losses that come from the bad drivers, the insurers don’t wish to risk covering under the rate plan. There is a special tax known as the ‘clean risk surcharge’ which can work up to $100 in the worst years, is then added to every policy in the state. This then leads to higher rates for the best driver which is really unfair.

The only way to fix the system is to abolish the legal profit guarantee that is given to the insurance companies while the rate approval remains in place.