For those of you with car insurance, I’ve got some bad news and some even worse news.
Many drivers’ insurance rates are increasing due to a confluence of factors, and some government officials apparently think they can fix the situation by artificially keeping premiums in check. Unfortunately, this could cause lasting and very serious damage in the insurance industry.
This kind of assistance brings to mind one of former President Ronald Reagan’s famous quips: “The nine most terrifying words in the English language are I'm from the government and I'm here to help.” Reagan uttered this wisecrack at a press conference in 1986, but it would appear that some have forgotten the axiom. This may explain why an untold number of Georgia policymakers are chomping to enact reforms affecting our robust insurance market in the name of helping others.
These developments all began when insurance giant Allstate recently filed their intention to raise auto insurance premiums in Georgia by another 25 percent. This elicited a stinging 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 increase in costs on hardworking Georgians when families are already struggling with historic inflation,” complained Commissioner John King in a press release.
“In response,” King continued, “I have begun conversations with our legislative leaders regarding changes to state law to give our office additional authorities to protect consumers from these types of inexcusable actions.”
In fairness to the commissioner, inflation is rampant and many Georgia 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 their actions inexcusable?
For starters, Merriam Webster defines loophole as “an ambiguity or omission in the text through which the intent of a statute, contract, or obligation may be evaded,” which doesn’t describe the current situation. Even the department of insurance seems to tacitly admit this.
“The Insurance Commissioner only has the authority to approve or disapprove minimum limits policy filings, while all other filings can go into effect immediately under what is known as ‘file and use.’ The latest rate increase filed by Allstate falls into the latter category,” reads the release.
The “file and use” system is clearly defined in the Georgia code, and it is part of the framework on which much of our property and casualty insurance market is built. So, this is less of a loophole and more of a carefully contemplated 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 remain in business. They simply cannot operate in the red for long without making changes or going bankrupt, and the insurance industry has been battered financially lately.
“Inflation, more frequent and severe accidents, costlier repairs, and other factors have been causing auto rates to go up,” Allstate explained. It’s not just Allstate and these issues either. Other insurers have been raising their premiums across the country, although not always as steeply, and they’re also dealing with increased litigation costs and auto theft. Faced with these realities, insurers of all stripes must find ways to either break even or turn a profit.
Yet growing government and giving policymakers increased power to make business decisions like capping insurance rates could be a disaster in the making. First of all, for those of you who think that the government can run a business better, I’d invite you to spend more time at the DMV or on hold with the state’s various customer service lines.
Second, if regulators force insurers to keep their rates unreasonably low, then insurers might simply leave the Georgia market—reducing competition and limiting consumers’ options—rather than going into serious debt.
Just like families must make ends meet to keep a roof over their heads, so too must insurers charge adequate rates to stay in business and pay their employees. That doesn’t mean customers must passively accept rate increases. They should feel free to shop around and switch to a different insurer. There are plenty in Georgia too, including State Farm, Farmers, Progressive, Liberty Mutual, Geico and so on.
Despite the nine most terrifying words according to Reagan, the government can sometimes help, which often requires that it fix its own mistakes, evenly and effectively apply the law, or get out of the way of private enterprise. As such, if the government wants to keep auto insurance rates lower, then they should focus on tackling inflation, lawsuit reform, auto theft and distracted driving, which are driving insurance rates skyward.
Marc Hyden is the director of state government affairs at the R Street Institute. You can follow him on Twitter at @marc_hyden.