Auto insurance reforms on the way? NC lawmakers question state's near-unique system

North Carolina is one of only two states in the nation that handles auto insurance the way it works here; officials say it also has some of the lowest insurance premiums in the country.

But state lawmakers are now questioning the setup — and whether the low premiums are because of the state's near-unique rules, or in spite of them.

A legislative oversight committee spent two hours Tuesday grilling the leadership of the North
Carolina Reinsurance Facility, a nonprofit group that operates as a risk pool that insurance companies can take advantage of to dump high-risk drivers into. Most states require insurance companies to keep high-risk drivers on the books, often in proportion to the total amount of policies they write. But North Carolina and New Hampshire use reinsurance facilities instead. Those allow insurance companies to take high-risk drivers off their own books and send them into a pool of risky drivers operated by the facility.

Drivers in North Carolina pay a surcharge on their insurance to help keep that facility solvent. Now state lawmakers are questioning whether reforms could help improve the system and save people money.

Some legislators were also less than pleased with the level of scrutiny the facility gives insurance companies, to make sure they're not taking advantage of the system. Rep. George Cleveland, R-Onslow, said he discovered his policy was put into the high-risk pool after he turned 80 years old, and that his insurer told him it was solely because he had turned 80.

But that seemed illegal, Cleveland said Tuesday, so he complained to the attorney general's office, which sent him to the facility, which confirmed his initial suspicion that his insurance company shouldn't have done that. Yet when he later went shopping around for new insurance, he claimed, many companies told him they automatically put all drivers age 80 and up into the pool — seemingly either not knowing or not caring that they shouldn't be allowed to do so.

Tom Burns, a director in the facility's compliance department, said the facility conducts multiple types of audits to make sure insurance companies aren't skirting the rules to get rid of drivers and policies they shouldn't be allowed to. "We have never looked at the age factor" in those audits, he said.

Reforms could be on the way

Rep. Jake Johnson, R-Polk, co-chaired Tuesday's committee and said he and other lawmakers are thinking about new legislation to shrink the size of the facility, forcing insurance companies to keep more drivers — and hopefully lowering the surcharges the rest of the state's drivers have to pay to fund it. Other lawmakers had other suggestions; Rep. Amos Quick, D-Guilford, suggested no longer forcing people to buy uninsured motorist coverage.

A 2023 report to the legislature found that about one in every four North Carolina drivers is in the high-risk pool that the facility operates. That report recommended leaving the facility model behind and moving to the system most other states use, saying there's reason to believe that not only would insurance companies make more money, but drivers might also start paying less in premiums.

South Carolina did the same thing 20 years ago, the report found, with positive results for drivers and their insurers alike.

The report said that was because insurance companies in South Carolina previously had no financial motive to push their customers to drive more safely; if they racked up tickets or wrecks, the companies could just dump them off in the facility's high-risk pool and not have to worry about incurring losses in the form of damage claims.

But once that pool went away, the insurance companies suddenly had an incentive to push drivers to drive better. And they did — through driving classes, monitoring software and more. Accidents decreased, and the companies’ profits rose: Even though they were charging less in premiums, they were also paying out less in claims.

And as insurance companies were forced to take on riskier drivers, they started competing more intensely for safer drivers, too, to balance the risks. That led to savings for local residents. "The reforms led to increased competition among insurance providers and lower premiums for South Carolina drivers,” the report said.

The report cautioned, however, that there are other factors to consider as well.

North Carolina has one of the nation's highest rates of drunk driving. It also has a number of heavily trafficked highways and geographic problems posed by a combination of sometimes snowy mountain roads and sometimes flooded coastal roads.

North Carolina lawmakers at Tuesday's meeting didn't seem to be in favor of jettisoning the facility model just yet. But reforms seem to be needed, they said, to at least make the system less confusing for drivers if not to also save people some money.

"We may need to tweak some things; we may need to look into different areas," said Rep. Allison Dahle, D-Wake. She added that the legislature needs to consider: "How do we make this clearer to people who access insurance, and now feel like they’re being ripped off?"