Auto insurance

Bigger government is not the answer to rising auto insurance rates

Marc Hyden is the Director of State Government Affairs at the R Street Institute. You can follow him on Twitter at @marc_hyden.

For those of you with car insurance, I have bad news and even worse news.

Insurance rates for many drivers are rising due to a confluence of factors, and some government officials apparently think they can fix the situation by artificially controlling premiums. Unfortunately, this could cause lasting and very serious damage to the insurance industry.

This type of assistance is reminiscent of one of former President Ronald Reagan’s famous jokes: “The nine most terrifying words in the English language are ‘I come from the government and I’m here to help.'” Reagan uttered this joke at a press conference in 1986, but it seems some have forgotten the axiom. This may explain why countless Georgian policymakers are rushing to enact reforms affecting our robust insurance market in the name of the helping others.

These developments all started when insurance giant Allstate recently filed plans to raise auto insurance premiums in Georgia by an additional 25%. This drew a scathing rebuke from the awkwardly titled Office of Insurance and Safety Fire Commissioner.

“I am angry and disappointed that Allstate has chosen to exploit a loophole in state law to implement such a substantial cost increase for hard-working Georgians when families are already struggling with a historic inflation,” commissioner John King complained in a press release.

“In response,” King continued, “I have entered into conversations with our legislative leaders regarding changes to state law to give our office additional powers to protect consumers from these types of inexcusable actions. .”

To be fair to the commissioner, inflation is rampant and many Georgian families are struggling to stay afloat, and if I was an Allstate auto policyholder, I’d be pretty annoyed too. But is the insurer exploiting a loophole and are its actions inexcusable?

To begin with, Merriam Webster defines a loophole as “an ambiguity or omission in the text whereby the intent of a law, contract, or obligation may be evaded”, which does not describe the current situation. . Even the insurance department seems to tacitly admit it.

“The Commissioner of Insurance only has the power to approve or disapprove minimum limit policy filings, while all other filings can take effect immediately under what is known as ‘file and use’. latest rate increase filed by Allstate falls into the latter category,” the statement read.

The ‘record and use’ system is clearly defined in the Georgian code and is part of the framework upon which much of our property and casualty insurance market is based. It is therefore less a loophole than a carefully considered and explicitly drafted law.

Whether or not Allstate’s actions are excusable probably depends on who you ask, but our market system essentially dictates that companies must at least break even to stay in business. They simply can’t operate in the red for long without making changes or going bankrupt, and the insurance industry has been financially battered lately.

“Inflation, more frequent and more serious accidents, more expensive repairs and other factors have driven up auto rates,” Allstate explained. It’s not just Allstate and neither are these issues. Other insurers have raised their premiums across the country, but not always so sharply, and they are also dealing with rising legal costs and auto thefts. Faced with these realities, insurers of all persuasions must find ways to either break even or turn a profit.

Still, the growth of government and giving policymakers more power to make business decisions like capping insurance rates could be a disaster in the making. First, for those of you who think the government can run a business better, I urge you to spend more time at the DMV or on hold with the various state customer service lines.

Second, if regulators force insurers to keep their rates unreasonably low, then insurers might simply exit the Georgian market, reducing competition and limiting consumer options, rather than go into serious debt.

Just as families must make ends meet to keep a roof over their heads, insurers must also charge adequate rates to stay in business and pay their employees. This does not mean that customers should passively accept rate increases. They should feel free to shop around and switch to another insurer. There are plenty in Georgia too, including State Farm, Farmers, Progressive, Liberty Mutual, Geico and so on.

Despite Reagan’s nine most terrifying words, government can sometimes help, which often requires it to correct its own mistakes, enforce the law evenly and effectively, or step back from private enterprise. As such, if the government wants to keep car insurance rates lower, it should focus on tackling inflation, reforming lawsuits, car theft and distracted driving, which are driving up insurance rates.

Marc Hyden is the Director of State Government Affairs at the R Street Institute. You can follow him on Twitter at @marc_hyden.