House Oversight and Reform Committee members sought to get solid answers on the value of the North Carolina Reinsurance Facility—the state’s residual auto insurance market system for higher-risk drivers.
The Department of Insurance struggled to answer clearly whether the benefits of the facility outweigh its costs.
Although insurers do not make a profit on their ceded policies, Causey and DOI staff admitted that insurers are able to charge an administrative fee and make profits on other coverage connected to the ceded policy. When Causey said some companies sell all of their policies through the Facility, Committee Co-Chair Harry Warren asked how they could stay in business if they do not earn a profit from these policies.
North Carolinians paid $360 million in the fiscal year that ended in June to subsidize insurance companies selling policies through the Facility. The two surcharges for the current year are set at 13 percent of premiums, which is more than the combined nine percent premium increase over two years the Commissioner approved.
Rep. Allen Chesser questioned the second of those two charges, which is set to keep the Facility from losing money: “The fact that we have to charge a recoupment surcharge for a deficit, does that mean that the rate that we’re charging on those particular policies would be inadequate?”
Chief Actuary Rick Kohan replied, “There is a recoupment that people have to pay because they don’t collect enough money from people ceded.” Which he acknowledged could be simplified to “Yes.”
Additionally, Causey did not know how many members make up the Facility’s governing board. The commissioner, who makes the appointments, is also responsible for accountability.
In his closing statement, Co-Chair Warren said, “I think the discussion today has raised more questions than it answered.”
Another hearing may be necessary for the Reinsurance Facility and Department of Insurance to show if the Facility provides more benefits than costs for North Carolina.