3.2 NC Rate Bureau & Reinsurance Facility

3.2 NC Rate Bureau & Reinsurance Facility

North Carolina employs a unique statutory framework for insurance rate regulation and high-risk driver access. Unlike most states that utilize pure open-competition rating or traditional assigned risk pools, North Carolina relies on two specialized statutory entities: the North Carolina Rate Bureau (NCRB) and the North Carolina Reinsurance Facility (NCRF). Claims adjusters and insurance professionals operating in North Carolina must understand these mechanisms, their statutory foundations, and their practical impact on policy issuance and claims handling.

1. North Carolina Rate Bureau (NCRB - NCGS Chapter 58, Article 36)

Created by the North Carolina General Assembly in 1977, the North Carolina Rate Bureau (NCRB) is a statutory rating bureau that develops uniform rate filings, policy forms, classifications, and manual rules for three specific, highly sensitive lines of insurance.

Mandatory Membership & Regulated Lines

Every insurance company authorized to write property and casualty insurance in North Carolina must be a member of the Rate Bureau as a condition of maintaining its certificate of authority. The NCRB exercises jurisdiction over three statutory lines:

1. Non-Fleet Private Passenger Motor Vehicle Insurance: Coverage on private passenger cars, utility autos, and farm trucks not part of a commercial fleet (defined as fewer than 5 vehicles under single ownership).
2. Residential Property Insurance (1 to 4 Units): Homeowners policies (HO-2, HO-3, HO-4, HO-6, HO-8), dwelling fire and extended coverage policies, residential theft, personal liability, and earthquake or flood endorsements written in connection therewith on residential properties designed for occupancy by not more than four families.
3. Workers' Compensation and Employers' Liability Insurance: Coverage subject to the North Carolina Workers' Compensation Act (NCGS Chapter 97).

Core Functions of the NCRB

• Statistical Collection: Gathers, consolidates, and analyzes loss experience, claims severity, and expense data from all member insurers.
• Rate Filings: Submits proposed base rate adjustments to the Commissioner of Insurance on behalf of the entire industry.
• Policy Forms and Rules: Drafts standard policy forms, rating manuals, and classification schedules that standardizes coverage terms across North Carolina.

The Statutory Rate Filing and Approval Workflow

Rate filings made by the NCRB are governed by strict statutory procedures under NCGS § 58-36-20:

• Statutory Review Window: Once the NCRB submits a rate filing, the Commissioner of Insurance has 50 calendar days to review the filing.
• Deemed Approval: If the Commissioner does not disapprove the filing or issue a formal notice of public hearing within the 50-day window, the filing is deemed approved.
• Public Hearing: If the Commissioner believes the proposed rates are excessive, inadequate, or unfairly discriminatory, the Commissioner must issue a notice of hearing within 30 days of the filing date, scheduling the hearing to commence within 30 days of the notice.
• Commissioner's Order & Judicial Appeal: Following the hearing, the Commissioner issues an order approving, modifying, or disapproving the rates. If the NCRB appeals the Commissioner's disapproval to the North Carolina Court of Appeals, member insurers may elect to implement the proposed rates during litigation, provided the disputed premium portion is placed into statutory escrow. If the court upholds the Commissioner's disapproval, the escrowed funds must be refunded to policyholders with statutory interest.

Rate Deviations (NCGS § 58-36-30)

Individual member insurers are not strictly locked into NCRB base rates. An insurer may file for a downward deviation (to offer lower rates based on superior expense efficiency) with the Commissioner's approval. Insurers may also use the statutory Consent to Rate (CTR) mechanism (NCGS § 58-36-30(b)) to charge a rate above the Bureau rate for a specific higher-risk property or auto, provided the named insured gives signed, written consent.

2. North Carolina Reinsurance Facility (NCRF - NCGS Chapter 58, Article 37)

In 1973, North Carolina abolished its traditional automobile "assigned risk plan"—where high-risk drivers were arbitrarily assigned to specific insurance carriers and given stigmatized substandard policies. In its place, the General Assembly established the North Carolina Reinsurance Facility (NCRF) under NCGS Chapter 58, Article 37.

Purpose and Mechanism of the NCRF

The NCRF is a non-profit, statutory reinsurance pooling mechanism designed to ensure that motor vehicle liability, medical payments, and uninsured/underinsured motorist coverages remain readily available to all licensed drivers and vehicle owners in North Carolina who are "eligible risks."

The "Take-All-Comers" Mandate

Under NCGS § 58-37-25, any licensed auto insurer and its appointed agents must provide coverage to any eligible risk applicant who applies for motor vehicle insurance. An insurer cannot refuse to issue a policy providing statutory minimum liability limits to an eligible driver.

Deficit Sharing and Facility Recoupment

When claims payouts and administrative expenses in the NCRF pool exceed premiums collected, the Facility incurs an operating deficit. By statute:

• Operating losses are apportioned among all auto liability insurers in North Carolina based on their total market share of direct written auto liability premiums.
• Insurers recoup these losses through a statutory Facility Recoupment Surcharge added to all North Carolina personal auto liability policies.

The Clean Driver Plan (NCGS § 58-37-35(l))

A foundational consumer protection in North Carolina is the Clean Driver Plan. Under this statute:

• A clean driver is defined as an individual who has had no moving traffic violations (convictions) and no at-fault motor vehicle accidents during the preceding three-year experience period.
• If an insurer decides to cede a clean driver's policy to the Reinsurance Facility (e.g., due to an inexperienced operator status or credit profile), the insurer is strictly prohibited from charging ceded Facility rates or surcharges.
• The clean driver must be charged the standard voluntary Rate Bureau base rate.

Adjuster Responsibilities for Ceded Policies

For claims adjusters, handling a claim on a policy ceded to the NCRF requires absolute equality of service:

• No Differentiation in Claims Service: Claims on ceded policies are adjusted, investigated, defended, and settled by the issuing insurer using identical standards applied to voluntary policies.
• Duty to Defend: The issuing insurer retains the statutory duty to defend the insured against third-party lawsuits up to policy limits.
• Good-Faith Settlement: Adjusters cannot delay, undervalue, or neglect claims on ceded policies, as all Fair Claims Settlement Practices under NCGS § 58-63-15(11) apply fully to ceded business.