The Upcoming 15% Rate Increase On Commercial Auto in NC is Not a Tax but It Sure Acts Like One

By May 7, 2018 News

The following article was written by David Rainey, innovative risk adviser here at JJ Wade & Associates.

The North Carolina Reinsurance Facility announced a new 14.61% commercial auto loss recoupment surcharge that will affect all new and renewal policies after October 1st, 2018. What does this mean for your company? It’s a fancy way of saying that all NC commercial auto rates are increasing regardless of your vehicles type, employee driving records, claims record, zip code, sock color, okay-you get it. Haven’t auto rates been going up already? Yes! Does this mean they can increase even more based on my vehicle type, employee driving records, claims history or zip code? Yes, yes and yes! Okay, let’s break this down in oversimplified terms:

There are two insurance groups or “pools” for commercial auto insurance in North Carolina. There is the NC Reinsurance Facility which facilitates insurance by setting the maximum rate that is allowed to be charged for insurance for those who cannot get insurance from a private insurance company at a lower rate. The NCRF, by statute, operates based on break even accounting. Therefore, if the claims for the year are low, rates go down. Conversely, if the claims are high, the rates go up. Private insurance companies and their clients make up the other pool and adjust rates similarly. The increase in distracted driving, increasing costs for repairs and rising auto fatality numbers are producing higher claim numbers and therefore requiring rate increases across the state. However, for the first time and following a $96 million loss last year, the NCRF has announced that they will be recouping their losses from all policies in NC across both pools. Charging a fee to everyone to benefit the insurance rates of one group sure acts like a tax. So, for all new business and renewals after October 1st, 2018, the NCRF will now charge a 14.61% increase to all policies written in North Carolina.

So if this affects everyone equally, what’s the big deal? Here’s the big deal: The vast majority of clients buy their insurance through a private insurance company at a rate lower than the NCRF rate. Insurance carriers are anticipating an 8%-10% increase in commercial auto premiums for these clients based on claims. Add the new 14.61% that everyone now pays for the claims in the high risk pool and you have an estimated 23%-25% rate increase beginning in October 2018 for the vast majority of companies in North Carolina. Ouch!

It is up to the individual insurance company to list this new charge as a separate line item or to include it in the overall rate on your declaration page so you need to discuss this with your agent to fully understand your new rate. With an October start for this new rate increase, it will be just in time for the Holidays!