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North Carolina's current rate system is known as a "prior approval" system, which means that the Department of Insurance must approve any rate changes. This system depresses competition in the state, which has led some insurance companies to either stop writing insurance in North Carolina or cut back on the number of policies that they will write.
In addition, every driver in North Carolina subsidizes higher-risk drivers that receive their insurance coverage through the North Carolina Reinsurance Facility. This subsidy drives up costs for all North Carolina drivers, regardless of their experience or driving record.
Below are some of the frequently asked questions about North Carolina's auto rates.
Nationwide, auto insurance rates are expected to jump 8.5 percent in 2002 and 9 percent in 2003. These rates are rising for several reasons, according to the North Carolina Rate Bureau.
Yes. A rate is the price of a given unit of insurance -- $5.00 per $100 of auto insurance, for example. The premium represents the total cost of many units. If the price to repair a vehicle is $5,000, the premium would be $50 x $5.00.
North Carolina has what is known as a prior approval rate program, meaning that the Commissioner of Insurance must approve all auto insurance rates before they go into effect. The Commissioner determines the maximum rate that insurance companies can charge, although companies may offer discounts off the maximum rate for things like a good driving record or specific safety features on a vehicle.
State law requires that the North Carolina Rate Bureau submit to the Commissioner of Insurance annually on or before February 1 a review of rates for private passenger automobile liability insurance. This annual filing normally includes a request that the rates be adjusted on the basis on the latest available experience with factors such as repair costs and medical costs.
In a prior approval system, it's difficult to maintain the balance between "adequate" and "excessive" rates. For example, pressures to provide low cost insurance can and do lead to inadequacies. In addition, because the Insurance Commissioner sets the maximum rate that can be charged, there is not much leverage within the industry for companies to provide lower-cost alternatives to its safest drivers because they aren't allowed to charge the higher-risk drivers as much as is necessary to cover them.
The North Carolina Rate Bureau, established by the North Carolina General Assembly in 1977, is an association of all of the insurance companies licensed by the Commissioner of Insurance to write insurance on non-fleet private passenger automobiles, residential property and workers compensation. Insurance companies that write these lines of business are required to be members of the Rate Bureau and provide the data from which it sets the rates its submits to the Commissioner. As of January 1, 2002, the Rate Bureau has 682 members.
The North Carolina Reinsurance Facility is a mechanism for pooling high-risk drivers who cannot obtain coverage by ordinary methods. Premiums, losses and expenses are shared by the member companies in proportion to the amount of business they write in North Carolina. Under the Facility law, licensed and writing insurance carriers and agents must accept and insure any eligible applicant for coverages and limits, which can then be ceded, or given, to the Facility.
The Facility accepts cession of bodily injury and property damage liability, medical payments, uninsured and combined uninsured/underinsured motorists coverages. Automobile physical damage coverages are not eligible for cession.
All companies licensed to write and writing automobile liability insurance in the state are required by become members of the Reinsurance Facility. The Facility currently has 477 member companies.
As of December 31, 2000, the Reinsurance Facility covers 25% of non-fleet private passenger automobiles. That makes the Facility one of the largest involuntary mechanisms in the United States.
Every motorist in North Carolina pays a surcharge on his or her auto insurance policy to help cover the costs of insuring these high-risk drivers. In addition, member companies of the Facility must pay surcharges if the Facility's claims outweigh its premiums to make up the difference.
Several factors and risks prompt insurance companies to cede a policy to the facility, including:
New and renewal private passenger auto policies effective between April 1, 2002 and January 26, 2003 and new and renewal policies effective between January 27, 2003 and June 30, 2003 are eligible for a refund.
That depends on your insurance company. Insurance companies will issue refunds no earlier than October 1, 2004 and have until October 29, 2004 to complete the refunds for those policies effective between April 1, 2002 and January 26, 2003 and have until November 29, 2004 to complete the refunds for those policies effective between January 27, 2003 and June 30, 2003. Refunds will be mailed to the address on your policy.
We do not know individual refund amounts. It depends on the insurance company that insured you and what you were charged. Many NC drivers were already receiving the company's lowest rate and will see no refund at all. How much, if any, each policyholder will receive will be based on how much they were charged after taking into consideration any discounts. Generally speaking the more discounts received, the less the refund will be. Drivers with insurance points, whose policies were surcharged and who were not entitled to other discounts, will likely receive larger refunds than other drivers.
A simple interest rate of 7.33%, applied annually to those policies effective between April 1, 2002 and January 26, 2003 and 7.13%, applied annually to those policies effective between January 27, 2003 and June 30, 2003 will be added to the refund amount from the effective date of your policy through July 22, 2004.
Numerous system changes need to be made so that the correct individual refund amounts can be calculated. That is why the refunds are not to be received prior to October 1st and no later than November 29th.
Companies will make a reasonable good-faith effort to locate you at your new mailing address.
The Rate Bureau rate is the standard or manual rate that a policyholder can be charged. Individual insurance companies can lower these rates based on their own loss experience. For example, insurance companies may offer discounts or deviations on their policies like the Multi-car, Home/Car, and Long-term discounts. Whether you were receiving a deviation during the time period in question may have an impact on the amount, if any, of refund you will get.
The practice of offering names of repair shops to insureds following an auto accident is widely used throughout the automobile industry. The theory behind doing so is simple. The insured does not have to seek two or three estimates and repairs are started without delay. In addition, the insurance company knows and trusts the repair shop to do quality repair work and provide excellent customer service.
It is a misconception that insurance companies require insureds to have their vehicles repaired at insurer-recommend repair shops. The direct repair program (DRP) is only offered as an option.
The DRP program is designed to benefit insurance policyholders. The cost involved in repairing automobiles is better managed by reducing the claims handling time and costs. Insureds are also guaranteed that repairs will be done properly and to their satisfaction.
While there are a wide variety of programs used by insurers, in general, a DRP is a program where an insurance company refers insureds to auto body repair shops which have met a set of criteria designed to ensure quality standards of repair, reasonable prices, convenience and satisfaction for the customer.
No.
The repairs can begin right away based on an estimate provided by the body shop. The program simplifies the claims process and provides customers with fast, convenient and quality service.
Insurance companies regularly inspect body shops that qualify for their preferred referral program. The shop must meet criteria relating to competence and quality of repair, including adequate training of technicians, state of the art repair equipment, prompt service and completion of repairs.