Georgia tops nation for increase in auto insurance rates

How we got this story

To study what’s been happening with auto insurance rates in Georgia, The Atlanta Journal-Constitution used the Georgia Open Records Act to obtain information about rate increases filed with the Georgia Department of Insurance. By combining through stacks of paper documents and computerized records, the AJC examined dozens of rate filing documents and obtained summary data from the department. The newspaper also studied years of campaign contributions made to Insurance Commissioner Ralph Hudgens to measure what share of the commissioner’s contributions came from those with ties to industries that Hudgens regulates. The AJC also worked with a consultant to determine how rate increases in Georgia compared with rate increases for auto insurance in other states.

After years of stable premiums, Georgia’s biggest car insurance companies have been pummeling drivers with rate hikes over the past two years.

The increases are the largest in a decade for many of the companies, with some filing more than two rate hikes in a year. The result: Georgia led the nation in 2014 with the highest overall increase in personal auto insurance rates. The state ranked second overall in 2013.

2017 Update: Georgia again leads nation in car insurance increases; Georgia insurance commissioner says his hands are tied by state law

It’s a throwback to the 1980s, when auto premiums were soaring 10 percent or more a year and rising faster than almost anywhere else in the U.S.

Georgia insurers say that a wave of costly weather events in the past two years — including tornadoes, hail and Atlanta’s Snowmaggedeon — forced long-avoided rate hikes. Increases also came, insurers say, as an improved economy placed more commuters back on the roads, leading to more crashes, injuries and lawsuits.

But another powerful force — Georgia politics — may be just as important in the rising cost of auto coverage statewide. In 2008, lawmakers handed insurers the freedom to increase rates on some types of coverage without first getting state approval. Two years later, a state senator who backed that law was elected Georgia’s insurance commissioner after the reign of two commissioners who prided themselves on being stingy regulators when it came to auto insurance prices.

Insurance Commissioner Ralph Hudgens, a former chairman of the Georgia Senate Insurance Committee, calls his job “a balancing act.”

“I’m here to protect the consumers of the state of Georgia,” Hudgens told The Atlanta Journal-Constitution just before heading to an insurance agents’ convention at the Omni Amelia Island Plantation & Resort in Florida. “But in doing that, I am going to let free enterprise and competition play out.

“In every industry I have seen, when you have competitive forces rather than regulations controlling an industry, it is a healthier and more vibrant industry and better for consumers.”

But Hudgens’ predecessor, John Oxendine, said the state has a role in making sure premiums for auto insurance — something all drivers are required to buy — don’t get out of control.

“You are either going to have a regulated market or an unregulated market,” Oxendine said. “I think insurance is a product where regulation is appropriate.”

An Atlanta Journal-Constitution review of rate requests by the state’s largest auto insurers found that big increases were extremely rare in the years just before the new law passed. Hudgens at first told the AJC that he rarely approved the full rate hikes requested by insurers. But the AJC’s review found just the opposite to be the case: His office almost always approves exactly the increases requested.

Either way, Georgia drivers are feeling it in the wallet when their premium notices come due.

Cobb County resident Michael Thiede said he’d had no accidents or tickets, but his insurer wanted to bump up his annual premium $288, to $1,800. His agent explained it was part of the overall uptick in rates statewide.

Thiede said the jump was simply too much. He shopped around and got a better deal, with his premium increasing by about $150 instead. That included a discount for prepaying the entire premium upfront, something he knows many Georgians couldn’t afford.

As a business owner with a paint-contracting company, Thiede said he generally believes in letting market forces determine prices. But he said the recent wave of rate hikes suggests more oversight might be necessary.

“In this instance, I believe government intervention in this, to rein in these kinds of increases, would be a very prudent thing to do,” Thiede said, “especially since it’s a government mandate that we have to have insurance.”

Rate reviews delegated

In 2014, Georgia’s top 10 auto insurers had overall rate increases of 8.6 percent, the nation’s highest, according to an analysis by SNL Financial. That followed a 4.9 percent increase in 2013 and a 5.5 percent overall bump in rates in 2012, which ranked second and sixth-highest nationally, according to SNL, which collects and analyzes business data.

State Farm Mutual, which dominates Georgia with a 21 percent market share, has implemented a series of rate hikes since 2012, including two last year. Those increases followed years where the company primarily implemented rate cuts. In fact, Georgia’s average auto premium for all insurers declined slightly between 2008 and 2012, when it was in line with the national average, according to data compiled by the National Association of Insurance Commissioners.

How should Georgia drivers view the wave of rate hikes?

“They should be upset,” said J. Robert Hunter, the Consumer Federation of America’s Director of Insurance and former Texas insurance commissioner. “Obviously, the government is not protecting them.”

He said insurance commissioners should limit rate increases to once a year and carefully monitor filings to make sure companies are not price-gouging. Hunter said auto premiums are already unaffordable for many low-income Americans, making the work of regulators vital.

The industry says, though, that underwriting losses led to the rate increases. Insurers and regulators say the companies usually request rate hikes that are lower than what they could justify, given their claims.

“Over time, the companies get a feel for a range (of increase) we will feel comfortable with,” said Steve Manders, a top staffer in the commissioner’s office. “They are not asking for 20 percent.”

Hudgens himself doesn’t even look at any proposed rate hikes unless they are above 10 percent, assigning Manders to decide if the majority of increases are fair.

“Those don’t come to my office,” he said. “When I became commissioner …. I said, ‘Steve, you can approve rates up to a 10 percent increase. If they are asking for more than 10 percent, I want you to bring them to my office.’

“If he had to bring every rate increase into my office, I wouldn’t be able to do what I am going to do today, and that is to go down to the ‘Big I’ (insurance agents) convention and then from there go straight to the industrial loan convention.”

Consumer revolt

The 2008 law came about after insurance companies fought off a consumer revolt over continuously rising auto insurance premiums.

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.

Evans sought to freeze rates, but he allowed increases before the freeze took effect. 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 10 percent.

With Miller and Ryles’ backing, Georgia lawmakers then passed a law requiring insurance companies to get state approval before charging higher rates, and Ryles used the law to block rate hikes.

Insurance lobbyists almost immediately began working to get the law changed.

In 2008, they finally succeeded, adopting a “file and use” system in place in about 30 other states. It allows the commissioner to review the rate changes after they’re made just to make sure they aren’t either excessive or inadequate to keep the company in business, and to make sure they aren’t discriminatory.

Oxendine, then the commissioner, predicted that the new law would lead to a big jump in rates.

Backers said competition among companies could produce lower rates, and Hudgens, at the time chairman of the Senate Insurance Committee, voted for the legislation.

For a time, premiums did decline for some drivers.

In the first two months after the law took effect, though, more companies raised rates than had done so during the previous nine months.

Manders said the commissioner’s office hasn’t seen the flood of rate cases Oxendine predicted. Because companies typically wait to implement rates until all of their insurance lines — those in which they have to get the commissioner’s approval and those that don’t — are finalized, the law has had little effect, Manders said.

Oxendine argues that the law made it tougher for commissioners to reject rate requests after the fact because they could legally only do so if the request is deemed extreme. It also made the commissioner's office reactive to rates rather than looking at them upfront to detemine if they were legitimate.

“I am not saying he (Hudgens) doesn’t want to be restrictive. He doesn’t have the authority to hold down rates,” Oxendine said. “That was decided by the legislative process.”

Hunter, of the Consumer Federation of America, studied how insurance regulatory systems influenced rates in every state over the past 25 years, and he said systems with prior approval have been the most effective at protecting consumers.

“It was very clear that the less the regulation, the more the rates went up,” Hunter said.

Insurance companies, he said, have not been struggling financially. They profited during the economic downturn, he said, because it reduced driving for many who lost jobs. Fewer miles driven results in fewer accidents and claims. “They made tons of money,” Hunter said.

State Farm reported that its profits nationally quadrupled in 2012. In 2013, it reported pre-tax property and casulaty operating profits of $4.3 billion, largely on big gains in its investment portfolio. The company reported earlier this year that 2014 profits fell 19 percent because of bigger underwriting losses on car coverage.

Allstate reported in May that first-quarter profits rose 13 percent, and its profit of $2.85 billion in 2014 was more than three times what it was in 2011. Nonetheless, Allstate said in May that it would raise premiums because of lower underwriting profits during the first quarter. Geico also cited lower underwriting profits for a premium increase.

Hudgens said Georgians drive more than most, and that the industry has seen heavier claims costs here.

When asked if he was concerned about the rising insurance rates, Hudgens said he was and cited his business background as helping him in his role as insurance commissioner.

“I think it has given me a sense of what the consumer is facing,” he said. “I am a businessman that understands the role of business. I’ve got a long history of owning my own businesses and so I understand what the people in the state of Georgia are facing when they need insurance.”