Question raised if nonprofit subsidizes private auto insurance agency

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(The Center Square) – Whether a state arm of the auto insurance industry is designed to “subsidize private industry” and adequate rates have been approved was questioned by a North Carolina lawmaker on Tuesday.

Rep. Allen Chesser, R-Nash, and the Select Committee on Oversight and Reform in the House of Representatives continued discussion on the cost of the North Carolina Reinsurance Facility. The nonprofit created in 1973 “is to ensure that all eligible risks can purchase auto liability insurance, to ensure the right premiums are collected and the correct losses are paid, and to minimize the impact on policyholders and companies in North Carolina.”

Joanna Biliouris, general manager, told lawmakers that policyholders ceded to the facility “never pay less in the facility than they do in the voluntary market” but the clean risk rate they pay isn’t enough to cover the facility’s losses. The state has the highest rate in the country of auto policies in the reinsurance market at 25%.

The North Carolina Rate Bureau, representing companies, and Insurance Commissioner Mike Causey negotiate approved rates. Chesser said the system is designed to “subsidize private industry” and questioned whether “inadequate rates have been approved.”

“I believe insurance rates are insufficient,” he said, because the facility is left with “a disproportionate amount of high-risk drivers.”

Biliouris said about 78% of policies in the facility are considered clean risk. The most recent total recoupment for six months that ended in October was $122 million, and it was $295 million for the six months before that.

Many auto insurance policyholders are unaware recoupment fees of up to 13% of premiums are hidden on bills to cover hundreds of millions of dollars in losses from polices ceded by insurance companies to the facility.

Insurance companies assess risk using a multitude of factors; the Reinsurance Facility considers only clean or not clean risk.

“Clean risk should be paying 70% more than what they’re paying,” Biliouris said.

Officials also discussed a variety of factors that conspire to produce liability auto insurance rates.

The average auto liability rate in North Carolina is $396 a year, compared to a national average of $631, and $715 in South Carolina, Biliouris said.

The committee’s previous hearing on auto rates in December centered on whether the state could save policyholders money through market reforms adopted by South Carolina around the turn of the century.

Committee co-chairman Rep. Jake Johnson, R-Polk, concluded the Tuesday hearing with a call to press forward with “looking at ways to get some clean drivers out of the facility.”

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