A bill, recently introduced in the NC House of Representatives by Representative George Cleveland, referred to as house bill 602, proposes to confiscate uninsured vehicles operating on NC highways. Cleveland is frustrated with the number of uninsured drivers on our highways and wants to step up the costs of noncompliance to get drivers’ attention.  If passed into law, then these rules would take effect December 1 2013.

In NC car owners cannot renew their license plates without first proving insurance is in place on the car associated with that tag.  However, once past this hurdle, some insurance policies are later cancelled while the driver continues to operate that vehicle on the highways.  The NC State Highway Patrol issued 24,436 citations last year to drivers without insurance.  Some estimates put the number of uninsured drivers on our highways as high as 15% of the total of all vehicles on the road.

As an aside, when I first became an insurance agent in the early 1980’s, uninsured motorists insurance coverage cost the average driver about $3 per year per car.  Now, that number has skyrocketed to nearly $150 per vehicle.  Part of this explosive increase in costs has been related to the introduction in the mid 1980’s of underinsured motorists coverage, but there is no doubt that the costs of uninsured drivers in our state is something that everyone who buys insurance here has to bear. 

The bill says that the confiscated vehicle will be placed under the possession of the sheriff of the county in which the violation occurred.  The bill says that the sheriff shall restore a motor vehicle to the owner, only after proof of insurance is obtained.  Also, the owner must pay the costs actually incurred by the sheriff for towing, processing, and storing the vehicle.  There is no mention of limitations on these fees and expenses so we could see widely differing costs for uninsured motorists from county to county.

One other area of the bill addresses the rights of the lienholder for a car that has been confiscated.  Section 3 indicates that the lienholder may petition the court to reclaim the vehicle for sale to satisfy the lien.  The allowance of this reclamation is up to the discretion of the court however and if the vehicle is returned to the bank or other lienholder then the lienholder has to return any proceeds of the sale above the balance on the loan to the state.

While to some, this remedy may seem a bit harsh, there are some additional provisions in the bill to soften the blow.  There are exceptions that can be made for technical errors that may have led to a lapse in insurance coverage.  Also, there is a grace period that allows the driver to obtain insurance in order to avoid the vehicle being sold by the state.  I think it is clear that the state of North Carolina would rather not get into the used car sales business so they will hope that most people will purchase insurance right away to get their car out of the impound lot.

There is no doubt in my mind though, that if the bill does successfully force more uninsured drivers to purchase insurance on their vehicles, then over time that will put downward pressure on uninsured motorists insurance rates and at least some money will be returned to the insurance consumers in our state that follow the law and buy insurance on their cars.

Currently the NC House and Senate are debating auto insurance modernization bills which are similar and have at their core a plan to completely change the way that auto insurance rates are created in North Carolina.  These bills, in my opinion, have some very good features and are steps in the right direction but also contain some wording that might create huge problems for the auto insurance consumer down the road.  Of course I wonder why our legislature is working so hard to fix an auto insurance system that is working so well, both stable and competitive, while ignoring the exact same rating system for home insurance that is so desperately broken that it is causing homeowners in our state incredible headaches?  Trying hard to fix something that isn’t broken while patently ignoring a crisis going on around them is probably a trademark of a good politician I suppose.

House Bill 265 has at its heart a more free market approach to auto insurance rate making in North Carolina than we currently have in place.  Our present system of rate making is a two-step process.  The NC Rate Bureau, owned by all of the insurance companies that do business in our state, proposes rates that would be the maximum that could be charged.  These proposed rates are sent to the insurance commissioner who can approve them or partially approve them or even modify them or reject them entirely.  The problem with this approach is that in election cycles it is difficult for the insurance commissioner to go on record as approving a rate increase even if one is desperately needed.

In NC, our homeowners insurance marketplace is in crisis.  Many homeowners have had their home insurance policies non-renewed by their insurance company because the insurance company cannot get the rate increases that they need to write that policy.  Somewhat ironically, a homeowner in NC will find it very difficult to buy home insurance in North Carolina without also purchasing auto insurance from that same insurance company.  Why? Because the maximum rates allowed for home insurance in NC are too low to allow the insurance companies to make money on those policies while the rates on auto insurance are high enough to allow profit and competition in that arena.  So why in the world is our legislature working so hard to modernize auto insurance rates while doing nothing to solve the rate crisis we are experiencing here on home insurance policies?  This type of open market rate making that is being proposed for auto insurance is exactly what we need for home insurance in North Carolina at this time.

I can get behind the bill to allow insurance companies to make their own rates, whatever they may be, for North Carolina Auto Insurance.  The free market will usually generate much better results for all consumers than will one that is dependent on the political will and whims of an elected insurance commissioner.  But I have one point of concern with this new legislation.  The bill as it stands now would allow insurance companies to develop their own coverage forms for auto insurance.  This will make comparing one auto policy to another much more complicated for the average consumer.  Apples to apples quotes will be a thing of the past though many consumers may not realize this.  The dark side of this kind of change is that many auto insurance buyers will purchase their insurance based solely on the lowest price and the result for them may be that they don’t have the protection that they need after an accident happens.  I have been told by some that in the states where differing policies are allowed, that most insurance companies tend to sell the same basic coverage to everyone.  So this may not be a big concern though on the surface from my perspective it doesn’t look good for the the consumer.

One other possible bad consequence of this legislation could be the ultimate loss of our rate bureau.  This bill would make insurance company membership into the NC Rate Bureau voluntary.  Will this mean that the large auto only insurance companies might leave the bureau and as a result leave the bureau without the funds that it needs to survive?  And if this happens, what then will become of our home insurance market which is currently unable to squeeze out a high enough rate for many insurance companies to even continue to write home insurance in NC.  Could this deepen the homeowners insurance crisis in NC?

At Clinard Insurance Group, located in Winston Salem, NC, we want all insurance buyers to be informed consumers.  We insure thousands of families all across NC and we can help you with any of your insurance needs from home and auto insurance to business or life insurance.  Give us a call, toll free, at 877-687-7557.