Several years back, the American Consumer Institute conducted a survey and found that 80% of North Carolina drivers would oppose any plan that to make good drivers pay more so that risky drivers could pay less. That is not surprising, considering better drivers tend to have fewer accidents and violations, making them less risky and less costly to insure. What is surprising, however, is that most drivers in the survey did that know that they are already paying a state surcharge to subsidize these riskier drivers.
That is a shame that some consumers are unfairly paying more than others. However, the bigger shame is that North Carolina drivers are completely in the dark about these charges. This is because state law prohibits insurance companies from disclosing these charges on consumer bills. Instead, these hidden surcharges are simply lumped into the automobile liability premiums you pay.
Unfortunately, many state legislators and regulators have tried for years to keep the automobile surcharge hidden from consumers to avoid public objections to subsidizing risky driving. After all, consumers dislike hidden charges, as our survey confirmed.
Several Past legislative sessions could have changed this, as bills were introduced to make these surcharges transparent on consumer insurance bills, but the bills have never seemed to get heard. The lack of transparency and the legislatures lack of motivation is a disgrace. Voters have the right to know.
If you are wondering why anyone would want to keep these surcharges a secret, that is because these surcharges are used to support an arcane insurance system designed to help risky drivers at everyone else’s expense. The state’s cartel-like system, referred to as a rate bureau, operates by gathering together information from auto insurance companies (think collusion), shares cost data with competitors and sets industry prices. It is price-fixing, but it is perfectly legal in the state, and some of the largest insurance companies love it. They love it, because provides for nice profits, limits direct price competition, and protects market their share. North Carolina has the last insurance rate bureau in the country – a through back of the pre-1970s.
Without price competition, consumers always pay more.
Because the rate bureau system does not give insurers the flexibility to charge rates that reflect risks, good drivers are always overcharged, and risky drivers are always undercharged. The result means that good drivers cannot get the same national discount plans offered in other states, many of which offer 30% and even 50% savings in terms of good driver discounts.
Nearly one-third of the state’s drivers were deemed risky as of a few years ago, all receiving subsidies at the expense of good drivers. Compared to other states that offer subsidized help for drivers who cannot find affordable insurance, previous data has shown that North Carolina’s system accounts for 90% of the national share of subsidized drivers. This dysfunctional insurance system prevents good drivers from being rewarded.
The current scheme of insurance regulations is anti-consumer, and it protects insurance companies instead of encouraging price competition between them. Drivers deserve transparency on their auto insurance bill, and they deserve the benefits of price competition – namely, lower prices – instead of regulatory central planning, as is occurring in North Carolina.
Policymakers that ignore the current system are implicitly opposing transparent consumer pricing. Those explicitly in favor of hiding fees on consumer bills are those in support of regulatory malpractice. It is time for the legislature to do what is right for its citizens and end these hidden fees.