Hearing on Monday focused on reforming auto insurance regulations

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(The Center Square) – North Carolina Insurance Commissioner Mike Causey is scheduled to testify Monday for a House oversight hearing focused on reforming the state’s auto insurance regulations.

Lawmakers want Causey, in his second term and the state’s only Republican insurance commissioner, prepared to discuss findings from a recent report by former Western Carolina University economics professor Jonathan Murphy on the state’s auto insurance regulations and reinsurance market.

“Dr. Murphy looked to South Carolina’s 1997-2003 reforms as an example of how North Carolina could reform its pricing regulations and reinsurance market,” read a letter requesting Causey’s testimony. “As you can see in the attached report, he found that a handful of reforms could slow the growth in premiums, reduce the number of drivers in the Reinsurance Facility, and even reduce premiums for many drivers.”

The North Carolina Reinsurance Facility is a mechanism for pooling insurance risks that cannot be covered by typical policies, with premiums, losses, and expenses shared by 580 member companies in proportion to their state auto liability insurance writings.

The facility’s share of the market has averaged around 25% since its inception, according to the facility website.

Murphy, now a professor at Nicholls State University in Thibodaux, La., found that percentage for the high-risk pool is the highest in the nation, which translates into higher insurance costs for both drivers in the facility and those with traditional plans.

The report offers possible reforms centered on removing limits on the facility’s rate increases, regulating the number and types of policies insurers can transfer to the facility, and increasing competition in the insurance market to drive down rates.

Murphy declined to discuss the details of the report with The Center Square ahead of Monday’s hearing, but noted that other factors that could impact rates include “a lot of inflation in automotive parts.”

Terry Collins, the facility’s chief operating officer, also declined to weigh in on the hearing or suggested reforms. Messages left for Causey, the Insurance Department and lawmakers who chair the House oversight committee, were not returned before publication.

Currently, “any eligible risk a company elects not to retain for its own account may be ceded to the Facility,” according to its website. “There is currently no cession limitation on the number of risks an insurance company may cede to the Facility. The law originally provided that no company could cede more than 50% of all of its automobile liability insurance business in the State.”

The change to no limits occurred in 1987 with House Bill 1158.

The hearing follows a settlement earlier this year between Causey and the North Carolina Rate Bureau, the organization that represents the state’s insurance industry, which allowed auto insurers to increase rates for new and renewing policies by a statewide average of 4.5% on or after Dec. 1. The deal also allows for the same rate increase in 2024.

The rate bureau in February requested a 28.4% rate increase, and Causey said in a statement the settlement will save drivers $1.6 billion over the next two years based on the bureau’s initial request.

The rate hike comes amid an increasing number of accidents and fatalities statewide. Accidents increased 0.8% in 2022, with speed a factor in nearly a quarter of fatalities, according to the state Department of Transportation.

The National Highway Traffic Safety Administration estimates fatalities increased by about 3.5% in the first half of 2023.

In an August statement announcing the settlement, Causey said “the No. 1 cause of accidents and, thus, rate increases is distracted driving.”

“It is unlikely that we will see rate decreases in the future unless some of these trends change,” he said. “Drivers and driving habits impact the rates the most, in addition to increased repair costs due to inflation.”

A study by U.S. News & World Report this year ranked North Carolina as the sixth-lowest state average for annual auto insurance costs, behind Ohio, Vermont, Wisconsin, Idaho and Maine.

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