South Carolina reforms auto insurance: 1997-98 South Carolina Act #260 motor vehicle financial responsibility act title 56, chapter 9 as amended.

• Author: Gordon, Dianna
• Position: On Reconsideration

THE ACT'S GOALS

* Significantly increase the number of insurance companies doing business in the state.

* Lower the price of auto insurance for good drivers.

* Ensure that premiums are priced fairly.

WHAT THE ACT DOES

* Allows insurance companies more latitude in setting rates by establishing a flex rating band that allows them to raise premiums annually up to 7 percent without having to seek approval from the state Department of Insurance.

* Stops making good drivers pay to insure bad drivers by eliminating the "recoupment" fee charged to every driver in the state.

* Drops the "mandate to write" requirement that insurance companies must sell a policy to any vehicle owner in South Carolina who needed insurance and had a valid driver's license. The new law allows companies to decide whether or not to insure a driver based on risk factors associated with each driver and automobile.

* Establishes a state program for risky drivers who can't get insurance elsewhere.

ONE YEAR LATER

South Carolina's reform so completely turned around the state's auto insurance market that it is considered a model today. So what happened with the law the first year?

Many insurance companies that had fled the state returned, and new companies joined them. As the reforms took root (various parts of the law were phased in over time) the number of insurers doubled, the market flourished and premiums went down.

The reform had two major features: It changed the way bad drivers were insured, and it let insurance company competition help regulate the market.

A large part of the reform was deciding how to deal with high risk drivers. The state replaced an assigned risk pool (where the burden was mainly on individual insurance companies) in the 1970s with a reinsurance pool operated by the state and funded with fees imposed on insurance companies. Insurers in turn passed the costs on, essentially making good drivers subsidize bad. The program lost hundreds of millions of dollars, according to Lee Jedziniak, general counsel for Farm Bureau Insurance, who was state insurance commissioner at the time.

In the late 1980s, Governor Caroll Campbell led a movement to list separately on insurance bills, the fees paid to subsidize the insurance of risky drivers and keep the state's reinsurance pool afloat.

"The consumers hit the roof," says Representative Harry Cato. And insurance reform became a perennial legislative issue. It also led to a political impasse. Democrats did not want...