An American Consumer Institute survey found that most North Carolina drivers did not know that they pay a surcharge on their auto insurance bill so that risky drivers can pay less. How could they know? After all, state law prohibits insurance companies from disclosing these surcharges on consumer bills. Also troubling, according to the same survey, 80% of drivers in the state oppose the idea of having good drivers pay more in order to help risky drivers pay less. In other words, North Carolinians abhor the idea of subsidizing risky drivers, which explains why regulators want to keep these surcharges a secret.
Encouraging risky drivers to get behind the wheel is not without adverse consequences. These drivers are more likely to have accidents and file claims for losses, which pushes up everyone’s auto rates. It also contributes to fatal crashes, which may explain, in part, why North Carolina has higher fatalities per miles driven, compared to the U.S. average.
Legislation has been introduced to end these subsidies and to make these surcharges transparent, but opponents claim this is somehow anti-consumer and will help insurance companies enrich themselves. Really? Another big secret is that the state’s system of auto insurance regulation works like a system of cronyism, and it is costly. Rates are set by a government-run rate bureau that gathers together auto insurance companies (think collusion), shares their cost data and sets an industry price. It is price-fixing, but it’s perfectly legal and most insurance companies love it, because the process allows for nice profits and it limits direct price competition.
While the vast majority of drivers oppose these hidden subsidies, the state insurance commissioner entrusted to protect consumers is opposed to regulatory reform. He defends the bureaucratic status-quo by stating that North Carolina has among the lowest insurance rates in the country. Actually – and here’s another secret – it doesn’t. If you factor in the hidden fee and adjust for cost of living, North Carolina is right in the middle of the pack and its average premium is nearly $250 more than in Virginia, where prices are set by market forces. But, that is the cost of encouraging risky driving and it is the failure to force the many insurance companies to compete for your business.
Rate bureaus are a thing of the past throughout the U.S., except in one state – North Carolina – and the demagoguery that reforms are somehow anti-consumer is just nonsense. The current regulations are anti-consumer, because they protect insurance companies instead of encouraging price competition. The fact is that consumers dislike hidden fees and, as a matter of fairness, they do not like paying more so that risky drivers can pay less. Let’s end the secrets, require government transparency and encourage price competition.
Steve Pociask is president of the American Consumer Institute, Center for Citizen Research, a nonprofit policy institute in Washington, DC.