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.