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How car insurance companies are regulated


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Question: Are car insurance companies regulated?

Answer: Yes.  For the protection of consumers, each state regulates car insurance companies that sell policies in its state. 

Among other things, the state can decide what minimum coverages a policy must carry and which criteria insurance companies are allowed to consider in setting rates.

State legislature sets general policy for the regulation of car insurance providers.  It reviews and revises state laws and insurance regulations that car insurance providers must follow.  State legislature bodies also establish and oversee state insurance regulatory offices – typically known as the Department of Insurance or DOI.  

States mandate that every car insurance company files its rates, and how they are calculated, with the state regulatory office.  Companies shouldn’t deviate from the rates they present to the state; that ensures any two people with identical legally allowable rating factors are shown the same rates. The state should review the rates and submitted information to make certain the filing complies with state laws.

Car insurance policy provisions should also be reviewed by the DOI to ensure that the policy is compliant with state laws, is reasonable and fair and doesn’t contain terminology that may be misunderstood by consumers and leave them unprotected.

Due to differing state laws and regulations, the forms car insurance companies are mandated to use, rating rules, and rate review processes vary from state to state. For instance, some states require approval before the rates are changed (increased or decreased), while other states allow the rates to be filed and put in place immediately.

A Consumer Federation of America (CFA) study -- “What Works? A Review of Auto Insurance Rate Regulation in America” -- breaks down by state what type of regulatory system is in place.  According to this study, the states are divided as follows for regulating rates.

Prior approval of rates changes is required in 15 states:

  • Alabama
  • California
  • Connecticut
  • Georgia
  • Hawaii
  • Mississippi
  • Nevada
  • New Jersey
  • New York
  • North Carolina
  • North Dakota
  • Pennsylvania
  • Tennessee
  • Washington
  • West Virginia

Rates must be filed before use, but approval is not required before use in 23 states:

  • Arkansas
  • Colorado
  • Delaware
  • District of Columbia
  • Florida
  • Indiana
  • Kansas
  • Louisiana
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Montana
  • Nebraska
  • New Hampshire
  • New Mexico
  • Ohio
  • Oregon
  • Rhode Island
  • South Dakota
  • Texas
  • Virginia

Rates can be filed with the state after they are already in use in eight states:

  • Arizona
  • Idaho
  • Iowa
  • Missouri
  • Oklahoma
  • Utah
  • Vermont
  • Wisconsin

Rates can be used without notice within a certain range (three “flex” states):

  • Alaska
  • Kentucky
  • South Carolina

Rates require no state review and no filing requirement (two “deregulated” states):

  • Illinois
  • Wyoming

If you have questions about your state’s regulatory practices, contact your state’s insurance regulatory office.  Besides explaining state regulations, your DOI can provide you with consumer advice and will allow you to file a complaint if you’re having an issue with your car insurance provider.

Even with regulations in place, car insurance rates vary widely because insurers are allowed to differ in how they rate drivers and how they weight various rating factors.  For this reason, you need to shop around to find the best car insurance policy for your needs and price range.

More articles from Penny Gusner



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