A decade ago, when Georgia Insurance Commissioner Ralph Hudgens was a state lawmaker, he backed a bill that would free auto insurers from a rigorous pre-approval process when they wanted to jack up rates.
“The information we were given at that time is if you let free-market principles take effect, competition was going to drive rates down,” Hudgens said.
But since Georgia passed the bill that insurers had wanted for years, rates haven’t gone down. In fact, they’ve exploded.
In 2016, Georgia led the nation with the highest increase in personal auto insurance rates, according to an analysis by S&P Global Market Intelligence. And that’s nothing new: Georgia ranked either first or second nationally for increases in the three previous years, too.
For years when rate requests were scrutinized before they were imposed, major hikes in Georgia were rare. But in the new normal, double-digit jumps and two increases a year have become routine. The biggest hike among the state’s large insurers hit last year, when Allstate imposed a stunning 25 percent average rate boost.
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The industry blames big increases in traffic, accidents and the cost to repair autos in Georgia. One expert called it a “public health epidemic.”
Some lawmakers say the increases are merely a sign of the free market at work, and that Georgians can shop around for coverage if they don’t like their rates.
Sitting in his seventh-floor office across from the state Capitol, Hudgens, the man elected to regulate insurance in Georgia, said he would like to do something to hold down rates. But he told the Atlanta Journal-Constitution, “I can’t — the state law, those guys over there, have taken that ability away from me.”
Hudgens acknowledges that he himself was once one of “those guys.”
Customers, consumer advocates and even some of those in the insurance industry aren’t so sure Hudgens is powerless to help consumers. They say he could have used his office as a bully pulpit to challenge insurers and pressed lawmakers for changes.
He has shied away from either, unlike his predecessor, John Oxendine, who was regularly in the public eye on consumer issues and publicly fought the bill Hudgens supported.
That inaction hasn’t gone unnoticed.
“We’ve just got a do-nothing commissioner down there,” said Lowell Fountain, a Gwinnett County insurance agent for more than 50 years. “They don’t want to do anything about anything.”
A few weeks after the AJC interview, Hudgens announced he wouldn’t run for a third term in 2018.
Car insurance is mandatory in Georgia. You can pay for different levels, with more complete coverage costing more. But if you drive, insurance companies and the premiums you pay are part of life.
Robin Greene, who drives a 2007 Pontiac Solstice, said her car insurance bill has grown to about $240 a month.
“It seems like it’s going up if not every time I renew, then every other time,” Greene said.
An instructor at a Christian school, Greene said she has full coverage for her car, but with all the increases, she wonders if she will be able to continue that.
Greene said she would like to shop around for a better deal, but changing carrriers would require her to make a big down payment. That isn’t in the cards because she already can find it tough to make her monthly payment to Progressive.
Once, Greene said, she let her policy lapse while she was out of work and also had medical bills. The result: She got ticketed, her car was impounded and her license suspended. It was so costly she learned never to take the risk again.
“Sometimes you have to pay the insurance even when you can’t eat,” she said.
The insurance commissioner, she said, should keep people like her in mind.
“I would like him to think more about the consumers who are having a hard time, especially with the economy the way it is,” she said. “We’re making less or not having jobs, and we’re having to pay higher insurance rates every time we turn around.”
Atlanta Municipal Court Judge Gary Jackson said he sees people like Greene in his court every day who face big fines for driving after they run short of money and fail to pay their auto insurance.
“I can’t go a day without a couple of insurance cases,” he said.
Insurers report drivers to the state if their policy lapses. The state then suspends the tag. Georgia law requires a driver’s license to be suspended if the driver is found guilty of driving on a suspended tag. The minimum fine for driving without insurance is $200 and driving on a suspended tag is $500, Jackson said. Add in state-mandated surcharges and costs related to a car getting impounded, and the total cost can easily exceed $1,000 for a suspended tag.
When asked what he could do to help drivers like Greene, Hudgens was stumped. “You kind of caught me off guard,” he said. “I really don’t know what to say.”
More cars, more accidents
To the insurance industry, the rising premiums are a classic case of cause and effect. The industry brandishes the numbers to make its case.
Robert Hartwig, co-director of the Center for Risk and Uncertainty Management at the University of South Carolina and former president of the industry’s Insurance Information Institute, is often called on to speak to lawmakers and other groups concerned about rates.
He was given a warm welcome in January when the industry-friendly Georgia House Insurance Committee met to discuss the rising premiums.
Hartwig said Georgia is seeing many of the same problems others states are, only more so. Since the Great Recession, more people are employed. More people are driving. The transportation system hasn’t kept up with the increased traffic load. Accidents are happening more frequently, particularly accidents in which people are injured or killed. The Georgia Department of Transportation reported that traffic deaths increased nine percent in 2016. The 1,561 fatalities were the highest since 2007, before the recession.
The rate of traffic fatalities rose faster in Georgia than in the nation as a whole, according to statistics compiled by the National Highway Traffic Safety Administration.
“If we saw the number of people in Georgia dying from some other cause along the lines of what we’re seeing with automobile fatalities,” Hartwig said, “we would have the CDC working on it full time.”
Hartwig cites other factors pushing up accident rates, like increased opioid use and people making calls or texting while driving.
On average, the frequency of collision claims in Georgia increased 6.9 percent in 2016 — seventh highest nationally, according to data Hartwig shared with the AJC. The national average was 5.1 percent.
Costs per claim have risen as well, Hartwig said. State Rep. John Meadows, R-Calhoun, a longtime insurance agent, noted you could replace a bumper decades ago for $25. Now, if your bumper gets banged up, he said, you have to replace the back or front panels and it could cost $3,000. Medical claims costs have risen as well.
All of this has driven down profits, Hartwig said. Nationwide, he said, profitability shrunk from about 12 percent in 2006 to closer to 4 percent in 2015.
“It is certainly not the case that the private passenger auto insurers are earning a rate of return that in some way could be considered excessive or unreasonable,” he said.
State Farm said that over the past five years, it paid out over $1 billion more in auto claims and expenses in Georgia than it took in.
“The bottom line is more people are driving more miles, at high rates of speed, often in heavy traffic, in more expensive automobiles, getting in more accidents,” said Justin Tomczak, a State Farm spokesman.
Rejecting hikes almost impossible
Auto insurance pricing is a complex game with all sorts of factors determining how much someone will pay. Most large insurers offer coverage through more than one company. To examine the trends, The Atlanta Journal-Constitution studied the detailed public records filed by the state’s largest insurers when they imposed a rate change. That examination uncovered the large, frequent rate changes that are driving up costs for almost every Georgia driver.
For example, a second AllState company — AllState Fire and Casualty — imposed two increases in 2015 and came back with two smaller increases in 2016 and 2017.
Just last month, GEICO popped many of its Georgia customers with a 14.5 percent increase — and that came after two other hikes in 2016.
State Farm Mutual, the state’s largest insurer with more than 1.5 million policy holders, imposed two increases in 2016: one for 4 percent and another for 11.1 percent.
Another State Farm company — State Farm Fire and Casualty, which covers more than 100,000 policy holders statewide — imposed two hikes in 2016 that were both whoppers: one at 19.8 percent and the other at 9 percent.
When rates first began to jump dramatically a few years back, Hudgens told the AJC, “I am going to let free enterprise and competition play out.”
Still, when Allstate Property and Casualty last year filed for a hike that averaged 25 percent hike but could mean increases as high as 58 percent, Hudgens issued a rare “consumer alert.” While he said he couldn’t stop the increases, he said he was ordering an actuarial exam to see if they were legally excessive.
A few months later, Hudgens told the AJC there was nothing he could do because under the state law passed in 2008, he can only stop a hike if he determined that new rates are unreasonably high and that “a reasonable degree of competition does not exist.”
Under that law, he said, it would be almost impossible for any hike to be rejected. More than 200 companies offer policies in Georgia.
Hudgens has been largely silent as many other companies have jacked up rates.
J. Robert Hunter, the Consumer Federation of America’s Director of Insurance and a former Texas insurance commissioner, said some rate increases are justified given the increase in accident rates.
But he said states like Georgia need to take a firmer hand with insurers, instead of allowing them to impose rate hikes without advance approval. States should regulate auto insurers like utilities, he said, making sure the companies aren’t charging customers for excessive salaries and lobbying expenses. He also said regulators need to limit the use of some factors — especially credit scores — that can make auto premiums especially high for many low-income consumers.
“The state requires you to get auto insurance and whacks you if you do not,” Hunter said. “That state has a responsibility, in my mind, to make sure that rates are fair and affordable.”
Free market approach
Car insurance rates have been a political hot button for decades in Georgia.
Between 1982 and 1987, Georgia’s average premium rose 95.4 percent, trailing only Arizona and Washington, D.C. Heading into the 1990 elections, Commissioner Warren Evans took much of the political blame.
Tim Ryles ousted Evans in the Democratic primary, vowing to reject any attempt to raise rates, and Zell Miller ran for governor promising to roll rates back as well.
With Miller and Ryles’ backing, Georgia lawmakers passed a law requiring insurance companies to get state approval before charging higher rates. Ryles used the law to block rate hikes. Insurance officials said some companies fled the state as a result. Insurance lobbyists almost immediately began working to get the law changed.
After more than a decade of trying, they succeeded in 2008 when then-House Insurance Chairman Tom Knox, R-Cumming, stuck language on an innocuous Senate bill returning Georgia to a “file and use” system in place in about 30 other states.
Hudgens voted for the bill and said he doesn’t regret supporting the change.
For a time, premiums declined for some drivers, but in the first two months after the law took effect, more companies raised rates than had done so during the previous nine months.
Then, Georgia began to see the kinds of rate hikes predicted by Oxendine when the law was passed.
That has turned up the political heat on state officials.
Last year Hudgens vowed to meet with House leaders about rising rates, but after speaking with them a few minutes at the January committee hearing, he didn’t push legislation during the session. He said he hasn’t really pressed lawmakers for change since then, although he intends to.
Hudgens, who is a regular at annual insurance industry conventions and conferences and who has relied heavily on industry contributions to his political campaigns, now says he would like the legislature to redefine what it means for a rate hike to be excessive.
The definition in the 2008 law all but guarantees that if there are multiple companies selling insurance in the state it will be difficult, legally, to fight a big rate hike, said Steve Manders, director of insurance product review in Hudgens’ department.
During the January meeting of the House Insurance Committee, Manders also asked lawmakers to consider mandating a waiting period so his agency can review rates more thoroughly before they go into effect.
Lawmakers didn’t take up the issue in the 2017 session, and it wasn’t clear if the idea would have gotten very far if they had. The committee includes lawmakers in the insurance industry, and its meetings are packed with industry lobbyists.
House Insurance Chairman Richard Smith, R-Columbus, called the current setup in Georgia “sort of a free-market system.”
“If my premiums rise 25 percent, I’ve got 200 companies I can contact,” he said.
But shopping for insurance isn’t like picking between two products at the grocery store or shopping on Amazon, said Ryles, the former insurance commissioner. It’s a process that overwhelms many drivers, he said. And that’s another way Hudgens could have stepped up.
A strong commissioner, Ryles said, can help consumers find a better deal by publicizing some of the tactics insurers use in pricing. The insurance market can only work well, Ryles said, if consumers have the information they need to truly shop around.
“One of the roles of a regulator is to throw some sunshine on a very confusing thing called insurance,” Ryles said.
Hudgens still likes to depict himself as a consumer advocate. In his release announcing that he wouldn’t run for another term, Hudgens said, “I ran for insurance commissioner because I believed I could be an effective advocate for consumers. My office has helped consumers get payments after insurance companies originally denied claims and has aggressively pursued insurance fraud. I focused on those consumer protections while also working to make sure we had a competitive marketplace.”
A few weeks before his announcement, he told the AJC, “All insurance is doing is trying to find the right amount of money to cover their accidents.”