By David. Ranii.
Insurance Commissioner Jim Long is leaving office with a bang, ordering a whopping 16.1 percent decrease in auto insurance premiums.
Insurance companies in the state have asked for a 12.9 percent increase -- the largest jump they have sought since 1994, but Long ruled that amount wasn't justified by the data they submitted.
Thursday's order by Long, who isn't seeking re-election this year after 24 years in office, came after a monthlong hearing in which his staff squared off against the N.C. Rate Bureau, which represents insurers.
The Rate Bureau has not decided whether to appeal the order to the courts. If the order stands, the Insurance Department estimates the savings for the state's motorists will exceed $1 billion.
The new rates would take effect Jan. 1.
Savings would differ by region and insurer, but a typical policyholder in Raleigh could save $118, while a typical Durham policyholder could save $160, according to the Insurance Department. A typical policy, in this case, covers a 2008 Taurus driven by an experienced motorist who has no points on his license and has a daily commute of less than 10 miles.
"As families are struggling to pay rising fuel bills, insurance companies were looking to feather their pockets," said Shana Becker, staff attorney for the N.C. Public Interest Research Group. "North Carolinians are lucky to have a consumer advocate who is looking to protect their bottom lines."
The decrease Long ordered covers the maximum rate insurers can charge. Rates vary by region and types of coverage. The industry last proposed a rate increase in 2006.
Insurance Department spokeswoman Kristin Milam said the lack of a rate-increase request last year is significant. "What happened in the past 12 months that made this change necessary?" she said. "We didn't see any major changes in North Carolina."
Ray Evans, general manager of the Rate Bureau, was dismayed by Long's decision.
Insurers object
"As a business, we think we have to charge a certain rate to stay in business, and when someone says we can't do that and have to charge much less, we have a lot of soul-searching to do," he said.
"How does this square with what we know about inflation? It just doesn't make any sense."
The Rate Bureau argued that higher rates were justified by the rising cost of medical care and car repairs and a slower decline in the rate of accidents. The Bureau represents 144 auto insurers that operate in the state.
Long typically has ordered a rate that undercuts the industry's request, but the gap between the two has never been as large as Thursday's order.
How could Long and the insurers be so far apart this year?
Milam, Insurance Department spokeswoman, said the insurers' data skewed the insurance picture. For example, the bureau included claims from riskier drivers -- those who are inexperienced or racked up insurance points against their license -- who were assigned to the N.C. Reinsurance Facility.
"That captures the riskiest drivers in North Carolina," Milam said. "They make their own filing. That data shouldn't be included."
Evans countered that excluding the Reinsurance Facility data is unfair, because it excludes 16 percent of drivers who are classified as "clean risk" but are assigned to the Reinsurance Facility anyway. Clean-risk drivers -- who can be put into that category by insurers for any reason, including perceived risk factors -- typically don't know they fall into that classification.
Last year, Senate Majority Leader Tony Rand pushed a bill, backed by insurance companies, that called for stripping the insurance commissioner's authority to set auto rates. Rand later tabled the bill and appointed a study commission to devise a comprehensive plan for regulating rates.
The latest fight over rates could spur action by lawmakers.
"If the commissioner's decision in this case does go before the court, and if it is overturned in part or in whole ... that will be just that much more evidence of the need for a modernization of the rate-making system," said Joe Stewart, executive director of the Insurance Federation of North Carolina, which represents property and casualty insurers.
If the Rate Bureau appeals Long's order, insurers can raise their rates while awaiting a decision and put into escrow the premiums collected above the rate that Long ordered. If the bureau were to lose such an appeal, insurers would have to refund the money, plus interest, to policyholders.
Evans noted that the interest rate charged -- prime rate plus 3 percent -- makes it tough to appeal, because the escrow amount would exceed $1 billion.
"That's big bucks," he said.
david.ranii@newsobserver.com or (919) 829-4877
