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.