In a roundabout way, it is a surcharge that holds down insurance costs for good drivers and increases rates for people with bad driving records.

Under state law, the N.C. Rate Bureau must set rates based on individual driving records. It does that through the Safe Driver Incentive Plan, which basically rewards safe drivers and penalizes drivers who have traffic convictions or accidents in which they were at fault.

Insurance companies assign points to individual policies, based on the SDIP guidelines.

In 1973, the legislature created the North Carolina Motor Vehicle Reinsurance Facility, an insurance pool to provide coverage to high-risk drivers that insurance companies declined to cover on their own. The cost of operating the facility is shared by the insurance companies, based on the proportion of car insurance coverage they issue in the state.

The reinsurance facility sets its own rates for high-risk drivers. But insurance companies can choose to assign policies for other drivers to the reinsurance pool for various reasons. If a driver is assigned to the reinsurance pool and is a “clean risk” driver with at least two years of driving experience, no traffic convictions or at-fault accidents, the reinsurance facility charges the driver the same rates that the driver could get through a regular insurance policy.

Here’s some additional information, from the Consumer Services Division of the N.C. Department of Insurance:

“NCRF has operated at a loss every year since its inception, and is allowed by North Carolina law to recoup operating losses by applying a ‘Loss Assessment Recoupment’ or ‘Allocation Surcharge’ to all North Carolina drivers’ automobile insurance policies. In addition, the law provides that all North Carolina drivers must pay a ‘Clean Risk Recoupment’ or ‘Allocation Surcharge.’

“This latter surcharge reflects (on an aggregate basis) the difference between the premiums that the NCRF-covered clean risks actually pay, and what they would have to pay to make the NCRF’s clean risk classification self-supporting.”

“Without the SDIP, approximately 75 percent of the drivers in North Carolina (particularly those who are clean risks) would be paying higher automobile insurance premiums. Conversely, drivers with traffic convictions and at-fault accidents would be paying lower premiums. Ultimately, the SDIP requires higher-risk drivers to pay higher premiums.”

For more information, go to these websites:

North Carolina Rate Bureau: www.ncrb.org/ncorg

North Carolina Department of Insurance: www.ncdoi.com

Date posted: October 23, 2009

User-contributed question by:
Jake