Gregory Edds recently testified before a committee in Raleigh that is looking into updating insurance laws. The N.C. Senate voted 46-4 in favor of the changes but the House sent it back to a committee for further review. Here are Edds’ views on the changes.Some very interesting and important insurance legislation has been introduced this session that will affect every driver in Rowan County.
North Carolina’s insurance system is among the oldest in the nation. Our system was established in 1922. The bills that have been filed this year are aimed at modernizing our outdated system.
Two bills were heard in the House insurance committee, HB 1298 and HB 729.
HB 1298 is a bill that will allow insurance companies to disclose to their policyholders, on auto insurance renewal notices, the recoupment charges that are being charged to them.
Currently, high-risk drivers who cannot secure auto insurance through the voluntary market are insured through the state-run plan called the “facility.” If the facility loses money in any given year, and it always does, then the losses are passed along to the safe drivers in North Carolina as a surcharge on their auto insurance. This is called “recoupment.”
In my opening statement, I told the committee that I supported the bill for the simple fact that North Carolina’s policyholders have a right to know that they are subsidizing the high-risk market each year, more than $250 million in 2006.
With recoupment charges becoming a larger and larger percentage of a policy’s total premium, we feel it is only fair that the general public be made aware of these surcharges and what they represent. To me, and others that support this legislation, thisbill is simply aboutdisclosure and thepublic’s right to know. Itdoesnotchangeanythingabouta policyholder’scurrentinsurance.
In 2006, facility losses of $250 million were passed on to North Carolina’s safe drivers. The problem is this surcharge is hidden.
At issue is whether the insurance companies should have the legal right to disclose this surcharge on their renewal notices. Until the late 1980s, it was permissible. Then the law was changed, making it illegal to disclose the surcharge information on their declarations pages.
In contrast, high-risk drivers that are placed in the facility are required to be notified that they are being insured through the facility and their higher planned premiums must be disclosed to them, to the penny, in writing.
Ironically, North Carolina’s safest drivers are not allowed to know that each year their premiums are being surcharged in order to keep the North Carolina Facility solvent.
Insurance Commissioner James E. Long expressed support for this disclosure and added other items he indicated he would like to see disclosed to consumers. The committee recommended the commissioner bring those additional items back in a separate bill for consideration.
Speaking in opposition to the bill was a representative for the Independent Agents of North Carolina. His opposition centered on the belief that disclosing the surcharge will mean agents will receive numerous phone calls from customers regarding recoupment fees and that will require extra work.
My company is a member of the Insurance Federation of North Carolina, as are most of North Carolina’s larger insurance carriers. The goal of this federation is to bring positive, meaningful reform to the state’s outdated insurance system.
As a member of State Farm’s Legislative Partners Leadership team, I have frequent contact with the federation. They asked if I’d be willing to share my thoughts on support for HB 1298 from the perspective of a local neighborhood agent.
The bill was expected to pass quickly, but last minute opposition required further discussion.
The second bill, HB 729, addresses the issue of out-of-state residents entering North Carolina to obtain insurance and then returning to their home state. I did not testify on this bill.
Most notably, drivers from New York and New Jersey are obtaining North Carolina insurance, then returning home and driving their vehicles in much higher risk areas. The claims generated by out-of-state drivers carry a much higher frequency, higher dollar costs and higher litigation costs than the average North Carolina claim.
This, in turn, drives up the costs of insurance for the drivers of North Carolina. A video from a Charlotte news investigative report even disclosed that van loads of out-of-state residents are being driven to North Carolina to purchase insurance, then bused back up North to enjoy the lower rates.
HB 729 would make it a class H felony to fraudulently obtain insurance in North Carolina while living out-of-state.
Gregory Edds is a State Farm insurance agent at 638 Statesville Blvd. Contact him at gregory.edds.gyxa@statefarm.com.