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Canceling Insurance Debt

May 22, 2007

By Peter Hull, The Post and Courier, Charleston, S.C.

May 23--There's light at the end of the tunnel for tens of thousands of South Carolina motorists who together are charged an extra $12 million a year for their automobile insurance.

Because of a state overhaul of the industry eight years ago, about one in 10 South Carolina drivers who had points on their licenses during the mid- to late-1990s are still paying for their road violations, and some might not even know it.

In all, about 300,000 of the drivers around the state are still charged an extra 10 percent on their premiums to wipe out a debt that at one time neared $350 million.

The fee affects anyone who had amassed points on their driving records -- for violations such as speeding or running a stop sign -- when the state's auto insurance laws were changed in 1999.

The good news is that the debt is nearly paid off.

The fees are a remnant of the South Carolina Reinsurance Facility, a state-run fund that was set up to cover problem drivers who could not buy coverage through private carriers. The program was closed down when lawmakers revamped the auto insurance industry in the late 1990s.

With about $18.5 million left to be paid, the debt should be cleared by the end of next year, said Tom Assad, director of field operations for the Automobile Insurance Plan Service Office, a Rhode Island-based nonprofit that administers the Reinsurance Facility.

About $12 million of the debt is paid off every year, he said.

Every auto policyholder in the state was forced to pay a "recoupment" fee to fund the original reinsurance program, which racked up losses from the time it was created in the 1970s. When lawmakers closed the facility, it had an estimated $350 million debt.

The legislature decided all South Carolina drivers would chip in until 2002.

After that, the burden shifted to motorists who had points on their records between 1996 and 1999. They would keep paying until 2005, when the facility was supposed to be wrapped up.

But as that deadline approached, it became clear that the remaining debt of about $47 million could not be repaid in time. So the fees were extended for five more years, until 2010, and are paid by the same group of roughly 300,000 drivers.

Some motorists might not even be aware they're paying more. That's because the state no longer requires insurance carriers to itemize the extra fees on their policies.

While the debt has taken longer to pay down than anticipated, the process turned out to be a good solution, said state Rep. Harry Cato, chairman of the House Labor, Commerce and Industry Committee, which handles insurance issues.

Some of the alternatives that were discussed in the late 1990s, such as forcing insurers to pay off the debt, likely would have resulted in higher costs for all drivers, even those with clean records, Cato said.

"It still would have been billed in the premium," he said.

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Copyright (c) 2007, The Post and Courier, Charleston, S.C.

Distributed by McClatchy-Tribune Information Services.

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