N.C. auto insurers to fight 16% rate cut

Drivers counting on cheaper auto insurance premiums next year take heed: The dispute over rates has shifted to the courts.

The N.C. Rate Bureau, which represents the state's auto insurers, decided Thursday to appeal the 16 percent rate reduction ordered last week by Insurance Commissioner Jim Long.

That order came after a month-long hearing in which insurers and regulators squared off.

Insurers won't necessarily ask the court for the entire 12.9 percent increase they originally sought. Instead, the Rate Bureau is mulling what rate it should seek from the N.C. Court of Appeals.

“My guess is the number we end up with is going to be a whole lot closer to the 12.9 percent number rather than the minus 16 percent,” said Ray Evans, the bureau's general manager.

Under state law, whatever number is chosen will be the rate insurers can charge beginning Jan. 1. But insurers will have to escrow the premiums collected above the rate ordered by Long.

If they lose their appeal, they would have to refund that money plus interest – prime rate plus 3 percent – to policyholders. With the prime rate at 5 percent, that amounts to 8 percent interest today.

The state estimates the difference between the hike the bureau initially sought and the rate cut ordered by Long exceeds $1 billion.

“We're not surprised at all about their decision to appeal,” said Insurance Department spokeswoman Kristin Milam. “They are certainly within their rights to do so.”

The rates regulated by the state cover the maximum rate insurers can charge. Thanks to competition, insurers charge many drivers less than the top rate.

Rates also vary by region and types of coverage. A typical policyholder in Raleigh who is an experienced driver, has no points on his license and owns a 2008 Taurus could save $118 a year.

Evans said the amount of interest insurers would have to pay if they lost their appeal played a factor in the decision to carefully examine what rate they should seek from the courts.

“The fact that the companies are willing to risk the potential payout of that kind of money on the escrowed accounts suggests they're comfortable that we have a good chance of prevailing,” he said.

In addition, he added, Long's lengthy order did make some points that bear consideration.

The Rate Bureau contends higher rates are justified by the rising cost of medical care and car repairs and a slow decline in the accident rate. But Long rejected those arguments, ruling that the data submitted by the industry distorted the situation.

The bureau has 30 days from the date of Long's order to appeal, but Evans said it plans to seek an extension.