NCInnovation to Report on Spending, First Round of Grants

The House Oversight and Reform Select Committee has called NCInnovation (NCI) CEO Bennet Waters to testify before the committee Tuesday, July 9, at 9 a.m. in the Legislative Building’s Blue Ridge Auditorium.

NCI is a public-private partnership intended to speed commercialization of university research. After proposals to fund NCI from the earnings of a $1.425 billion endowment, the final 2023 budget bill (HB 259, SL 2023-134) included two appropriations to the endowment of $250 million each.

“The General Assembly made a big bet on NCInnovation. If it succeeds in bringing university research to market, the state will reap significant returns,” said co-chair Rep. Harry Warren (R-Rowan). “NCI leadership has not publicly addressed its funding assumptions or its operations. This hearing can be a step to increase our comfort with putting so much faith in one organization’s ability to pick winning technologies.”

Committee members have questions on NCI’s legislative reporting, receipt and use of state funds, its operations and grantmaking, its funding assumptions, and its long-term plans.

Co-chair Rep. Jake Johnson (R-Polk) noted, “NCInnovation intentionally chose two projects from each region, which does raise concerns of how much it is making decisions on merit and how much on political considerations.”

Driver’s License Backlogs, Kiosks, Summer Rush Top of Mind for House Oversight, Commissioner to Testify

Raleigh, NC – The House Oversight and Reform Committee has requested Department of Motor Vehicles Commissioner Wayne Goodwin to appear before the committee Thursday, June 6, at 9 a.m. in the Legislative Building Auditorium.

Members of the committee will be seeking answers on problems old and new. Goodwin is expected to address the backlog of delivery of driver’s licenses and state IDs and report on the implementation of kiosks. Members will also question the commissioner on the transition to a new vendor for credentials, expectations for the summer DMV office rush, and the status of license plate agencies.

“Drivers have enough frustrations dealing with the DMV without additional delays in getting their licenses. I expect Commissioner Goodwin will be able to explain the reason for the delay and what measures the DMV is taking to fix this latest problem quickly,” co-chair Harry Warren (R-Rowan) said.

Members will also be following up on questions from last year’s House Oversight hearing and a February meeting of the Joint Legislative Transportation Oversight Committee.

“DMV deserves scrutiny,” said co-chair Jake Johnson(R-Polk). “It is one of the most conspicuous services of state government, so it should set the bar for customer service. We know its problems and I hope Commissioner Goodwin will be able to tell us about its progress.”

Targeted Reforms Could Shrink the Reinsurance Facility and Save Most Drivers Money
North Carolina Reinsurance Facility Executive Director Joanna Biliouris talks with House Oversight and Reform Committee co-chair Rep. Harry Warren, Tuesday, January 30, 2024.

Members of the House Oversight and Reform Committee gained a clearer understanding of the North Carolina Reinsurance Facility Tuesday, January 30.

Executive Director Joanna Biliouris explained that the Facility exists because drivers are required to purchase liability insurance, insurers cannot set rates entirely based on the risk of a specific policy, and the rates that are allowed are too low for companies to provide that insurance to everyone. In short, the Facility does what it was created by statute to do. but that the Facility can’t quantify its own value. Legislators also learned that the Facility operates as it does due to how the insurance commissioner sets auto liability rates.

The cost of the Facility in the year ending June 30,2023, was $360 million in surcharges on every auto liability policy written in North Carolina, but the value is harder to quantify. Biliouris said, “The Facility cannot be credited with North Carolina having such low liability rates, but North Carolina’s low liability rates can be attributed to the Facility being a part of the state’s regulatory and statutory landscape.”

Ads tout that customers can purchase insurance priced to their driving habits. However, in North Carolina that is not the case: all drivers pay 9.8% higher premiums through a surcharge to cover riskier drivers in the Reinsurance Facility. Biliouris told the committee that the Facility covers 28% of premiums and 20% of policies. Even policies in the Facility pay the surcharge, which means many of them could be cheaper if an increase in premiums led to a larger reduction in the surcharge.  

Fully 78% of vehicles in the Reinsurance Facility are “clean risks,” meaning the associated drivers have no points on their driving record but have other factors, such as speeding tickets, accidents, or inexperience behind the wheel that make them more likely have a claim.

Legislators focused on ways to improve the broader market and reduce the need for the Reinsurance Facility.  

“I’m hoping we can do some things to accelerate this transition
and get it moving faster.”

Rep. Jake Johnson

Representative George Cleveland (R-Onslow) asked, “Can the Facility do its function as provided by law if clean risks were not allowed?”

“If there was more flexibility in the rates that companies could charge [in the voluntary market], they would likely not send that risk to the Facility.” Biliouris acknowledged. “If the Facility was able to determine the rates for any risk that came in,” it could. Such changes could result in lower premiums and surcharges for most drivers.

“I see a recurring problem, and that is that I believe insurance rates are insufficient,” Rep. Allen Chesser (R-Nash) said. “Is it a bigger problem that inadequate rates have been approved?”

“The drivers that are ceded to the Facility are primarily ceded because it was too much risk for the company to take on for not enough price,” Biliouris said.

Biliouris agreed with co-chair Harry Warren (R-Rowan), “If rates were raised…there would be a reduction in the number of policies ceded.”

Co-chair Rep. Jake Johnson (R-Polk) concluded that he saw a need for reform: “I’m hoping we can do some things to accelerate this transition and get it moving faster.”

House Oversight Seeks Answers Department of Insurance Couldn’t Give

Members of the House Oversight and Reform Committee will continue their attempt to get concrete answers from the Department of Insurance on the effectiveness of the North Carolina Reinsurance Facility (NCRF) in a hearing Tuesday, January 30, 2024, at 9 a.m.

In December 2023, the committee questioned Insurance Commissioner Mike Causey about auto insurance rates and the costs versus benefits of the Facility. Causey was unable to provide tangible justification, so, the committee has invited NCRF executive director Joanna Bilouris to address those unanswered questions.

The most prevailing question is: How does the NCRF contribute to the low rates that North Carolina drivers pay?

North Carolina has among the lowest rates in the nation, but it also operates a reinsurance facility, one of only two states to operate its residual market in this way. Twenty-five percent of drivers are in the Facility. Legislators aim to determine what part the Facility plays in those low rates amidst other factors such as liability law and fewer uninsured drivers.

“We expected more from Commissioner Causey in our last hearing but were left unsatisfied,” co-chair Rep. Jake Johnson said. “We anticipate Director Bilouris’s answers to what we’ve asked all along: ‘do our citizens pay more than they should for auto insurance?’ It’s our duty as a committee to investigate the necessity of a government program that may not be financially or practically beneficial to our state.”

“It’s really quite simple: show us evidence that having the Facility does what you say it does—is the Facility the reason North Carolina has low auto insurance rates,” co-chair Harry Warren said. “We can’t just take their word for it. Provide the numbers. We are not the lowest in the country, and those that are, don’t have a facility.”

Oversight Hearing cannot determine if North Carolina benefits from auto Reinsurance Facility

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.

Do North Carolinians Pay Too Much for Car Insurance? House Oversight Committee to Examine Auto Insurance Market

Do North Carolina drivers pay more than they should for car insurance? Would a change in regulations lead to higher or lower rates?

These are among the questions the House Oversight and Reform Committee will seek to answer December 11, 2023, at 1 p.m. in the Legislative Building Auditorium.

The committee will hear testimony from Dr. Jonathan Murphy, assistant professor of economics at Nicholls State University in Thibodaux, Louisiana, and North Carolina Commissioner of Insurance Mike Causey.

Dr. Jonathan Murphy, assistant professor at Nicholls State University, and North Carolina Insurance Commissioner Mike Causey will testify before the House Oversight and Reform Committee Monday, December 11, 2023.

The House Oversight and Reform Committee commissioned Murphy, a former Western Carolina University professor, to conduct a study of North Carolina’s auto insurance regulations and residual market.

The state’s residual market—the North Carolina Reinsurance Facility (NCRF)—is a group of insurers required to cover high-risk drivers. Currently a quarter of drivers fall into this category, higher than any other state.

Murphy will testify about North Carolina’s market and the benefits of moving the state to an assigned-risk system where drivers are assessed, and premiums are calculated based on risk. Using similar reforms in South Carolina as an example, he predicts that if North Carolina implemented the move, premiums would fall for drivers at all risk levels over time.

Causey will address his disagreements with Murphy’s report, the specifics of North Carolina’s insurance market, differences in insurance premiums across states, and other regulatory needs of the Department of Insurance.

“Auto insurance is an expense for anyone who drives,” said co-chair Rep. Harry Warren. “If North Carolinians are paying more than they should because of the system we have, it is our responsibility to understand why and to examine alternatives.”

“Price distortions distort behavior,” said co-chair Rep. Jake Johnson. “If a voluntary auto insurance market would create competitive premiums and promote safe driving, we owe it to our citizens to investigate such financial implications.”

Unemployment Benefit Timeliness and Accuracy Still Have Room to Improve

Division of Employment Security (DES) Assistant Secretary Antwon Keith touted his agency’s efforts in correcting improper unemployment insurance payments and the timeliness of first-time payments in his testimony before the House Oversight and Reform Committee Wednesday. In response, State Auditor Beth Wood questioned that the recommendations from two audits by her office were being implemented.

Keith and Wood appeared before the committee to address those long-time problems and how the agency has worked to fix them.

“The thousands of North Carolinians laid off during the pandemic shutdown overwhelmed the system and brought new urgency to fixing those chronic flaws,” committee co-chair Rep. Jake Johnson (R-Polk) said. “Now that unemployment rates are again near three percent, it is a good time to improve the system.”

In the past, DES has complained that the federal improper payment rate relies on a small sample. “It needs to be re-evaluated,” Keith said but did not offer an alternative. Using the current methodology, however, North Carolina’s 16.67% improper payment rate is better than other southeastern states, Keith emphasized.

Reps. Allen Chesser (R-Nash) and Maria Cervania (D-Wake) pressed him on getting better estimates and better performance, regardless of the measure. Wood reinforced their point. “It’s not good enough for North Carolina,” she said. “We should be pushing to be better.”

Beth wood testifies before committee.
State Auditor Beth Wood addressed unemployment insurance recommendations to DES as well as other areas of state government her office examines. Wood also announced her decision to not seek re-election in 2024.

Wood’s audit on improper payments found that DES had failed to prepare for the inevitable economic downturn or to implement recommendations from the U.S. Department of Labor. “The biggest issue we need to talk about was the lack of preparedness for what happened,” Wood said. “We don’t know when a disaster is going to happen, so I would have expected DES to be more ready than they were.”

Keith noted that 54,000 people filed for unemployment in one day in April 2020 due to Covid shutdowns. The agency also had to implement multiple new programs with little federal guidance and few guardrails. The federal Government Accountability Office reported in September that the laxest of these programs, Pandemic Unemployment Assistance, had up to $135 billion in outright fraudulent payments.

Another Auditor’s report on first-time payments found DES was slow with $438 million in benefit payments during the pandemic. Committee members and Wood herself emphasized that this was not simply a result of demand. Federal requirements state that 87 percent of these payments must be paid within 14-21 days. North Carolina has not met this standard since 2010.

Stressing that North Carolina should do better, Rep. John Torbett (R-Gaston) noted that the federal requirement is lacking. He asked, what if our payroll, bank account, or doctor’s diagnosis were only 87 percent accurate. “What about when you get in your car or truck, knowing that there’s an 87 percent chance it’s going to start and take you to where you need to go?” Torbett asked. “What about our schools? What if kids in our schools, we knew there was an only 87 percent right our kids would be educated?”

Wood faulted the heavy reliance on manual interventions that can take between 40 and 110 days to complete, far beyond the 21-day federal guideline. She tested the system herself and found a need for improvement in getting help. A claimant seeking help for to correct a mistake, such as a mistyped social security number, encountered a maze of options to select and information to give, only to end in a message that told callers the system was busy and to try again later.

Auditor Oversight

Members were interested in what it takes to merit a performance audit from the State Auditor. Wood responded, “We look at where there is a lot of money spend or impact [on the greatest number of North Carolina citizens].” She also commented on the importance of follow-up on her recommendation through legislative oversight committees. She noted that HB471 would put more onus on agencies to show they had taken steps to implement recommendations.

Members and Wood discussed the vulnerability of local governments and the options available to improve their financial oversight. Wood mentioned efforts by the recommended that these smaller towns and rural counties hire outside help, such as a CPA firm. Local government associations can provide assistance, she said.

In a surprise announcement closing the hearing, Auditor Wood said she would not seek reelection, but “that leaves us 14 months to kick some butt.”

House Oversight Committee to Examine Unemployment Insurance Payments

Raleigh, NC — The House Oversight and Reform Committee has invited Division of Employment Security (DES) Assistant Secretary Antwon Keith and State Auditor Beth Wood to appear before the committee Wednesday, November 1, 2023, at 1 p.m. in the Legislative Building Auditorium.

The committee is following up on recommendations from the State Auditor and the U.S. Department of Labor to improve the accuracy and timeliness of unemployment payments. Committee members expect to learn about the progress DES has made and other steps the agency is taking to provide more timely and accurate payments.

“The pandemic highlighted flaws in the ability to make timely first-time payments and to ensure the right amount goes to the right person,” said co-chair Rep. Jake Johnson. “Federal pandemic unemployment benefits were particularly vulnerable to fraud and mistakes. North Carolinians need to know the unemployment system is fair, fast, and free of fraud.”

“It is good that both the State Auditor and the General Assembly can hold agencies accountable,” co-chair Rep. Harry Warren said. “I look forward to working with her to ensure broad and deep oversight on behalf of taxpayers.”

Assistant Secretary Keith and Auditor Wood have submitted presentations ahead of Wednesday’s hearing. Those can be found on the committee’s website.

DMV Testifies on Driver’s License Controversies

Division of Motor Vehicles Commissioner Wayne Goodwin defended the DMV’s handling of two driver’s license controversies in his testimony before the House Oversight and Reform Committee Wednesday. Goodwin and Chief Deputy Commissioner Portia Manley told committee members the unusual process to select a driver’s license printing vendor was appropriate. Goodwin also addressed questions about a budget provision to extend the eight-year driver’s license renewal period to sixteen years.

Sixteen-Year Driver’s License Renewal Period

 The REAL ID Act of 2005 requires that state driver’s licenses cannot be valid longer than eight years. Goodwin said he did not realize this until after DMV made its legislative request in February 2023, but he was less than clear why legislators were not made aware of this. He said the original request was an attempt to reduce wait times at DMV offices. Goodwin did not directly address the portion of the provision that would allow unlimited online renewal of driver’s licenses, merely stating that a new photo is required every sixteen years.

Rep. Jeff McNeely (R-Iredell) listens to testimony during the House Oversight and Reform Committee hearing Wednesday, October 11, 2023. (Photo by David Cobb)

Rep. Jeff McNeely (R-Iredell) pressed the timeline of awareness and communication.

McNeely, chair of the Transportation Committee, said he did not receive any communication asking that the provision be removed. Members of the committee asked for email communications to track the chain of requests.

“Lack of communication to the chairs is the problem,” McNeely said. “More eyes could have realized what was happening and made sure we corrected this. In the future we need to broaden our net as we cast it.”

Driver’s License Issuance Contract

Goodwin testified that appropriate procedures were followed in selecting CBN Secure Technologies as a new vendor to produce North Carolina’s driver’s licenses.

Only a small number of companies produce credentials that meet federal, state, and American Associate of Motor Vehicle Administrators (AAMVA) requirements. He explained that DMV chose to interview three of five companies that met its initial criteria. After site visits and presentations in Raleigh, DMV officials chose CBN based on their secure technologies.

Goodwin defended the process DMV used to select the company. Citing Session Law 2021-134 (HB650) that allows DMV to exempt five information technology projects from DIT oversight and requirements to increase the speed of technology modernization projects.

North Carolina General Statute 20-7(n)(4) requires that a driver’s license must contain a color photograph. Goodwin testified that CBN can print in color, but the company prefers black-and-white based on industry standards and security best practices. He said passports and “half” of U.S. state driver’s licenses are black-and-white.  Goodwin said DMV’s request to add the words “or monochromatic” was rebuffed by “DOT leadership.”

Rep. Allen Chesser (R-Nash) raised concerns about data security given the CBN Secure Technologies is a global company. He further urged caution and a full, unrushed vetting process because of the importance of security.

Goodwin reiterated that the process used for selecting CBN Secure Technologies was in accordance with state law and included representatives from multiple departments. “No one person made the decision,” he said. “The decision relied upon the 2021 law…[was] discussed at the meetings earlier this year, is also based on recommendations of subject matter experts, it tracked DOT procurement and RFP process, and followed the direction, approval, and blessing of then-Secretary Boyette and our legal team.”

More to Come

Committee members were not satisfied with Goodwin and Manley’s responses on either issue. They requested more documentation of the procurement process and of communications related to the legislative provision. Chairman Harry Warren said the Committee also hopes to have the Commissioner back to discuss customer service at driver’s license offices.

House Oversight Committee Investigates DMV Contract and Renewal Extension; Commissioner, Deputy to Testify

Raleigh, NC – The House Oversight and Reform Committee has issued a letter to the Division of Motor Vehicles Commissioner Wayne Goodwin and Deputy Commissioner Portia Manley requesting their appearance before the committee Wednesday, October 11, at 9:00 a.m. in the Legislative Building Auditorium.

The committee is investigating the process that DMV used to award a contract for printing driver’s license to Canadian company CBN Secure Technologies. DMV exempted the project from IT procurement oversight and did not use a competitive bidding process. Members will probe the process, timing, and rationale behind DMV’s decision. They will also pursue allegations that the vendor’s technology may not be able to produce driver’s licenses that comply with state law.

Additionally, the committee will seek to understand the reversal in Commissioner Goodwin’s support for extending the 8-year driver’s license renewal period to 16 years. Goodwin made the legislative budget request for DMV in February. Since the budget passed, however, the commissioner has spoken out against the provision, saying the extension violates federal REAL ID requirements. Members attempt to determine when DMV learned that the longer renewal period would not meet federal requirements, why it was not until after making the request, and why the agency did not make legislators aware sooner.

“One purpose of oversight is to examine if department officials are complying with the law,” said committee co-chair Rep. Jake Johnson. “We have to wonder whether this contract is even valid if the company cannot produce a legal state driver’s license. The speed and lack of oversight in awarding this contract also raise concerns related to the security of North Carolinians’ personally identifiable information.”

“The commissioner has provided little to back up his statements that 16-year license renewals do not comply with federal REAL ID requirements,” co-chair Rep. Harry Warren said. “To the extent that he is correct, it is not clear why it took until after he made the legislative request to learn this. We want to clear up the confusion.”