Court of Appeals Largely Upholds N.C. Commissioner’s Order to Reduce Auto Rates

North Carolina Insurance Commissioner Jim Long last week received word that the North Carolina Court of Appeals has largely upheld his order in the 2001 auto insurance rate case to force insurance companies to drop rates by 13 percent.

The rate rollback reportedly means that potentially millions plus interest for over two years at prime rate plus three percent in refund checks could be making their way out to policyholders at some point.

“I am pleased to hear that the Court of Appeals believes my order of a rate rollback was justified,” Long said. “This means North Carolina drivers could be getting back the premiums they paid out unnecessarily.”

All auto insurance companies doing business in North Carolina are required to be members of the North Carolina Rate Bureau (NCRB), an independent organization, which then files rate change requests on behalf of its member companies. All rate requests must go through the Department of Insurance, where Long has final say.

Rate filings are made on an annual basis, and if the NCRB and Department staff cannot reach an agreement, the case goes to hearing. As hearing officer, Long then has the power to decide the case. He has a history of denying large increases and instead ordering rate decreases – to date, Long’s negotiations with the NCRB have potentially saved citizens $3.2 billion in increased premiums.

Any appeals of Long’s orders are referred to the North Carolina Court of Appeals, where the process can take several years to decide. In the meantime, insurance companies can raise rates; however, the difference between Long’s ordered rate and the implemented rate must be held in escrow. If the NCRB’s appeal is denied, that money plus interest must be refunded to consumers.

The Chief Judges of the Court of Appeals were reportedly in agreement over all but one issue in the 2001 case. One of the three judges dissented over that single issue; the NCRB has the automatic right to appeal to the Supreme Court based on this dissention.

“While its frustrating to see this process continue, I am confident that the Supreme Court will find the 2001 order to be sound,” Long said. “We’ve run into appeals at the Supreme Court level before and we’ve always come out on top. I have no reason to doubt the same won’t happen again because the issues have not changed.”

At issue is the way dividends and “deviations” (premium discounts offered to some drivers) are treated by the industry as a business expense in its rate calculations.

The Department has for some years reportedly insisted that dividends and deviations represent a distribution of profit and should be treated as such in setting auto rates. The North Carolina Supreme Court supported this methodology in 1999. Long contends that dividends and deviations are intended to represent a savings to some consumers; however, the NCRB builds the cost of these savings back into the rates which must be paid by all consumers regardless of whether they benefit from the savings.

“I hope North Carolina drivers understand that their Department of Insurance is working hard to make sure they don’t have to pay any more for insurance than they have to,” Long said