Six years ago, Bill Mabry paid Allstate $619 a year to insure his three-bedroom home in Mount Pleasant.
That was "not too bad for the time," he says.
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GRACE BEAHM/STAFF
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Bill Mabry, who worked at Allstate for nearly three decades, said he believes insurance regulators need to do a better job to protect consumers against frequent and sharp rate increases.
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This year, insuring his home costs more than $1,075, a 74 percent increase that astounds him and that he thinks is economically out of whack.
Mabry says he should know: As a retired 27-year veteran of Allstate, the former insurance agent understands better than most how insurance risk is determined and how rates are set.
It's hard for him to believe his home is 74 percent more of a risk than it was five years ago. While he acknowledges his home has appreciated, its value has not skyrocketed to the point of justifying the steep increase, he says.
Insurance rates have climbed nationwide as the property and casualty industry seeks to recover losses on Wall Street. Insurers also have raised rates to offset higher underwriting losses, the result of natural disasters and consequent payment of claims. But rates in South Carolina have been rising faster than the national average.
In Mabry's view, the problem exists because regulators are failing to do their jobs to protect consumers.
"The way regulation is handled now, it seems like insurance companies and lobbyists are making up the rules and the South Carolina Department of Insurance is going along with it," he said.
Mabry isn't alone in that outlook. Consumer advocates, lawmakers and even some former Department of Insurance officials say South Carolina's insurance regulators appear to favor industry interests over those of consumers.
Under the leadership of Director Ernst "Ernie" Csiszar, the Insurance Department has, indeed, given companies more flexibility in setting prices and coverage terms than in years past. Csiszar's belief is that increased flexibility will draw more companies to the state and, as a result of the increased competition, help hold down costs.
He may soon see his viewpoint endorsed by the General Assembly, which is considering a bill that was crafted from model legislation written by industry interests and that eventually would allow insurers doing business in South Carolina to set their rates with no regulatory scrutiny at all.
"Finding insurance coverage on the coast is a problem, and one of the ways we can solve that problem is by providing insurance companies greater incentive to come and write business," said Sen. David L. Thomas, R-Greenville, sponsor of the bill and chairman of the Senate committee on banking and insurance.
The Insurance Department dismisses criticism that it sides with the industry and maintains that its efforts to improve competition are primarily consumer-driven.
While that assertion is being debated, one thing is clear, South Carolinians pay more for insurance than ever.
The state's four largest home insurers -- which, combined, cover about 60 percent of South Carolina's roughly 1.1 million owner-occupied residences -- have each raised rates at least three times since 2000, citing weather risks and other financial pressures, including those losses on Wall Street suffered during the downturn.
In the past, home and auto insurance rates in the Palmetto State rose more slowly than the national average. But the average auto insurance expenditure grew by 5.8 percent between 1999 and 2001, outpacing the national average growth rate of 4.5 percent, according to the latest data from the National Association of Insurance Commissioners.
Rates at some of the bigger insurers have climbed even more steeply since then.
For example, State Farm, which insures one in four homeowners in South Carolina, won state approval in 2001 to raise homeowners' rates by 6.2 percent. It followed in 2002 with a 15.5 percent increase and then a 19 percent increase last year.
None of the increases were contested by the state Insurance Department.
The state Department of Consumer Affairs, however, managed to trim State Farm's 2003 increase from a requested 27 percent to the 19 percent that was finally approved. It was still the steepest price increase by a home insurer doing business in South Carolina in more than a decade.
Allstate and Nationwide, South Carolina's second- and third-largest insurers, also imposed double-digit rate increases in recent years.
"We're fortunate because we can (afford to) pay," Mabry said. "I'm afraid a lot of other people in similar situations won't be able to ... and they're going to lose their insurance."
TO REGULATE OR NOT
Buying auto insurance is not optional; it's mandated by law for all drivers. Lenders, meanwhile, require homeowners paying a mortgage to have insurance.
That's part of the reason why people are upset that the cost of insurance has soared over the past decade and continues to rise far faster than the rate of inflation. The rapid increase has galvanized state and national consumer advocates, who blame the insurance industry for what they see as onerous and unjustified price increases.
The South Carolina Department of Insurance, they say, isn't helping.
Csiszar is an industry veteran, having served as president and chief executive of Columbia-based insurer Seibels Bruce Group Inc. He's also a self-proclaimed free marketer who has harshly criticized industry regulation, at one point calling it the last bastion of socialism.
The insurance director, who grew up in communist Romania in the 1950s, says the solution to South Carolina's insurance woes is less regulation, a philosophy he has been acting on since he was appointed to his job by Gov. Jim Hodges in 1999.
Csiszar says burdensome regulations serve only to drive insurers out of the state, leaving holes in coverage and higher consumer prices in their wake.
The way to woo insurers back to South Carolina, he says, is by promising to leave them alone. Once companies get wind of the hassle-free environment, he argues, they'll return in great numbers and drive down prices naturally through increased competition.
Csiszar, who recently became president of the National Association of Insurance Commissioners, has been using that influential pulpit to draw support for his cause.
Consumer groups are appalled.
They say insurance, more than almost any other consumer product, needs strict regulation because of its complexity and the likelihood it will be misunderstood by consumers. They are also concerned about potential abuse by the industry.
The state, they argue, has an absolute obligation to help control spiraling insurance costs because it's the state that mandates insurance coverage.
The issue has come to a head in recent weeks in the Legislature, where a controversial Senate bill to lift price controls on home and auto insurance has won favor among conservative lawmakers.
The bill, championed by Csiszar, would give home and auto insurance companies the right to raise rates as much as 10 percent without state approval and could eliminate price controls by 2007, enabling insurance companies to set rates at will.
The Insurance Department concedes that the bill is closely based on legislation crafted by the National Conference of Insurance Legislators, a pro-industry group whose membership, according to the Consumer Federation of America, is 40 percent industry insiders and stakeholders.
"We support the department's efforts on this legislation," said Paula Fernandez, an attorney with State Farm who handles legislative affairs for the company's South Carolina division. "We believe it is a step in the right direction toward bringing more companies and capital to South Carolina."
The proposal also is endorsed by the American Legislative Exchange Council, a group that specializes in crafting pro-business model legislation. Its board of directors includes executives and lobbyists for some of the nation's biggest corporations and industry groups, such as communications giants Verizon and BellSouth, cigarette maker RJR, and at least one insurance company, Golden Rule.
Yet not everyone connected with the insurance industry supports the notion of total rate deregulation.
Martin Simons, a public actuarial consultant and former chief actuary for the state Insurance Department, is opposed to the bill and says more needs to be done to protect South Carolina consumers.
"Under previous administrations, the department was active in reducing rate (increases) from those that were requested by insurers, saving consumers in South Carolina hundreds of millions of dollars," he said.
He said the pricing of insurance products relies on dizzyingly complex risk calculations, and it is the state's job to make sure requested price increases are justified.
Until last year, that job fell to the department's actuary, who is not accredited by the Casualty Actuarial Society, a fairly standard stamp of approval for chief actuaries. The department now outsources the actuarial analysis job.
Simons said insurance companies generally file rate requests toward the upper end of actuarial ranges to err on the side of profitability. Close oversight by government is necessary to correct that bias, he said.
He pointed to North Carolina as an example of a state with relatively successful insurance regulation. North Carolina's insurance department says that its efforts to mitigate price increases by insurance companies have saved drivers and homeowners $1.43 billion over the past five years.
"Take regulation away and insurance companies can overcharge consumers," Simons said. "We have to ask ourselves, 'Are we looking to increase competition or increase income for the insurance industry?' "
MORE COMPETITIVE?
In Csiszar's view, the relaxation of regulation already has begun to pay off.
In 1999, partial deregulation made it easier for auto insurers to raise rates and charge higher premiums to drivers with speeding violations or accidents on their record.
The legislation also removed the ability of the state's consumer affairs office to request hearings on rate-increase requests before they were approved by the Insurance Department. The result has been fewer hearings and less scrutiny of auto rate changes, the consumer affairs office said.
On the flipside, it has meant lower regulatory costs and a greater number of auto insurers writing business in South Carolina.
Since the law's adoption, the number of insurance companies writing auto policies in the state has roughly doubled to about 160, while total premiums have gone from $1.65 billion to roughly $2 billion ó clear signs of success, Csiszar said.
"We started out with a lousy insurance market and have created a much more healthy one," he said.
A closer look, however, reveals that while the number of licensed insurers has increased steadily, the balance of competition remains lopsided. The top three insurance groups ó State Farm, Allstate and Nationwide ó still control 55 percent of the private-passenger auto insurance market, as measured in premiums.
In homeowner's insurance, the same three groups control half the market.
Critics say that while Csiszar's easing of price regulations for auto insurance did lure more companies to South Carolina, the increase did not improve competition in ways that benefit consumers.
They note that several companies that rushed in after restrictions were loosened were actually higher-rate affiliates of the dominant insurers.
For example, Allstate was joined in November of 2001 by Allstate Indemnity, the company's higher-rate affiliate.
"A lot of those new affiliate companies came running back because they could enter the state and raise their rates more easily," said Robert Hunter, director of insurance for the Consumer Federation of America.
South Carolina's average auto insurance premium fell 8.2 percent to $703 between 1998 and 1999, the year Csiszar became state insurance czar and began implementing the relaxation of price and other regulations. Prices then climbed back to an average of $744 by 2001, according to the most recent figures available.
"Csiszar has got this theological view against regulation that is laissez-faire to the point of establishing no guidelines. He's a blocking back while the insurance industry is doing an end-run to a touchdown," Hunter said.
Since Csiszar began easing regulations on auto insurance, premiums have climbed more rapidly than the national average.
The latest data for the housing market, in which price controls have not yet officially been relaxed, show that average premiums in South Carolina have held their ranking as the 16th most expensive in the nation. The average South Carolina home insurance premium was $527 in 2000, the latest year for which figures were available.
Kruger, the insurance department actuary, acknowledges that he adjusts down very few of the industry's roughly 3,000 rate requests each year.
Rather than make frequent adjustments, he said, the department has established a policy that generally signs off on rate requests that are less than 25 percent. Requests above 25 percent undergo scrutiny and stand a good chance of being altered.
In 2003, insurers made 3,358 rate filings with the Insurance Department, of which 2,996, or 89.2 percent, were approved; 86, or 2.56 percent, were disapproved; and 276, or 8.22 percent, are still being processed.
"That is markedly different from the way things used to be," said John Richard, who served as South Carolina's insurance commissioner from 1985 to 1995.
"We probably held three or four public hearings a week relative to rate requests on property and casualty insurance, and it wasn't unusual for me to adjust what insurance companies requested," he said. "Unquestionably, we saved consumers money."
The department today, he said, makes little use of public notifications and public hearings that involve the consumer affairs office.
That office took part in about 35 hearings a year in the early 1990s and helped consumers save more than $200 million over the course of the decade.
In the past three years, however, the office participated in just two hearings.
The reason for the decline is twofold, said Hana Williamson, an attorney with the Consumer Affairs Department.
While the insurance bill of the late 1990s limited her office's ability to challenge industry requests, state spending cuts over the past three years have meant less money to wage battle.
She said the more comprehensive deregulation bill in the state Senate would increase consumers' powerlessness before the industry.
She noted that the few rate requests her office had managed to reduce through negotiations such as last year's lessening of the State Farm rate increase, would come to an end if the bill passes.
"It would completely remove the consumer advocate's ability to challenge any rate increases at all," she said.
Csiszar does not contest that. In fact, he says that is precisely the point.
To Csiszar, who spent five years working for the industry, overregulation simply hurts competition and drives up consumer prices.
"You're just driving companies away through the regulation process," he said.
Industry economists agree, but those who represent consumer interests don't.
Birny Birnbaum, a Texas-based economist with the consumer-oriented Center for Economic Justice, calls the deregulation plan the fulfillment of "an industry wish list."
"The insurance industry argues that letting their companies get their products to market quickly and easily will attract competition and benefit consumers," he said. "In our view, South Carolina already has among the fewest protections of any state in the country, and this bill would make matters worse."
