Update on NC Homeowners Insurance Crisis
August 4, 2009 by Gary Sides
Created as an insurer of last resort, the Beach Plan was morphing into something it was never intended to be, and should not be — the coastal property insurer of choice. And no wonder. For various reasons, as insurers were denied the rates they claimed they needed to compensate for the increased risk of coastal exposure, many private insurers simply stopped writing coastal policies. In the place of a properly priced private market, the Beach Plan offered coverage at below-market rates.
How could it do this? Easy — with other people’s money. In the event of any catastrophe beyond the so-called “50-year storm,” the Beach Plan would simply pass onto property insurers anywhere in the state an “assessment” — the obligation to make up the difference! If insurers didn’t like this, well, they could leave the state.
Last summer, Farmers Insurance finally called the Beach Plan’s bluff, decamping entirely from the North Carolina property insurance market, leaving 40,000 policyholders from all over the state in need of replacement policies. The departure of Farmers Insurance also raised the exposure of the state’s remaining property insurers to the Beach Plan’s fantasy financing. It doesn’t take a genius to imagine what might happen if things didn’t change. Other insurers have announced rate increases and new underwriting restrictions.
Earlier this year the state Department of Insurance recognized this necessity by approving an increase in the premiums paid by those owning property at the coast, as well as approving a higher deductible (the amount of loss an insured absorbs before insurance proceeds kick in).
This made terrific sense. North Carolina had one of the lowest coastal deductibles of any southeastern state, dis-incentivizing our coastal property owners from taking cost-effective mitigation measures that could strengthen their homes and reduce the amount of wind losses caused by storms in the first place.
A study committee also recommended several reforms to the Beach Plan and these recommendations were introduced in the NC House as HB 1305. The bill raises the Beach Plan’s financial capacity to satisfy wind-damage losses by incorporating a variety of interconnected reforms: coastal rates are raised, a modest but crucial increased deductible is imposed, coverage is limited to residential properties valued at $750,000 or less, (currently the plan offered coverage up to $1,500,000) and, in the event of a true catastrophe slamming into the coast, it can obligate all of the state’s ratepayers to surcharges that cannot exceed, in any one year, more than a 10 percent increase (approximately $65/yearly to the average $650 property tax premium).
Of course, all this reform didn’t go unnoticed. Lawsuits by coastal interests were filed against the measures taken by the Department of Insurance. The department won one and lost another, currently on appeal. The prospects for reform of the Beach Plan looked uncertain.
HB 1305 , has been approved in the NC House (after which it goes on to the Senate), does not give reformers everything they should demand. But it’s also far better than the status quo.
Personally, I fear if this legislation is defeated by special interest we will see serious homeowners rate increases, even tighter underwriting restrictions and more insurance companies leaving the NC homeowners market.
Grease Clog Removal Fills Home With Sewage
January 7, 2009 by Gary Sides
On the evening of April 6, 2008, Meg McCormick says three city workers were trying to clear a sewer line in front of her southeast Charlotte house by blasting a grease clog out with a high-pressure hose.
The plan backfired, literally. It forced sewage through the home’s pipes, up through its toilets, throughout the first floor, and down into the crawl space under the house. It lasted 55 minutes.
Over the next few days, the McCormicks spoke with city risk managers, Mecklenburg County environmental engineers, and their homeowners’ insurance carrier. They were distressed to discover that their insurance didn’t cover sewage backups –then again, they’d never considered the possibility.
Four inches of sludge covered the floor. Sewage had leaked into the central air and heat system, and solid waste had collected in the heat ducts. Total estimated sewage? 3,000 gallons.
After a lengthy process, The City of Charlotte agreed to pay for the damages and repairs and for the McCormicks to stay at a hotel for as long as the work lasts.
Such back-ups aren’t uncommon, especially in a city like Charlotte, whose growth threatens to outstrip its infrastructure. Grease clogs are usually the culprits.
BE COVERED: Most homeowners’ insurance policies can be endorsed to add sewer and drain back up coverage for around just $25.00 a year in additional premium.
Homeowners Insurance Rates to Change May 1
December 31, 2008 by Gary Sides
Insurance Commissioner Jim Long signed a settlement agreement with homeowners insurance companies Thursday, allowing rates to increase by an average of 4.05 percent.
The North Carolina Rate Bureau, which represents all of the homeowners insurance companies doing business in the state, had requested a 19.5 percent average rate increase.
Rate changes will vary by territory. Some coastal territories could see increases by as much as 29% while western areas could actually decrease. The changes will take effect May 1, 2009.
“There has been a lot of speculation surrounding this homeowners rate filing, but I feel that we’ve reached a settlement that is fair to both consumers and insurance companies in North Carolina,” Long said in a statement. “No one likes to see their insurance rates go up, but the industry made a strong case for allowing some increases this year. The silver lining is that most consumers won’t see nearly the increases that were initially proposed.”
The settlement also realigns several insurance territories along the coast so that homeowners who live farther inland pay less for insurance. Long said that makes sense because these homes have less exposure to the impact of a hurricane.
The increase will be the first since May 2007, when homeowners insurance rates went up 5.4 percent.