North Carolina Coastal Insurance Fix Would Alter Deductibles, Limits
North Carolina legislators started grappling last week with how to beef up the state-created but underfunded insurance program for coastal property, and immediately confronted the possibility that all of the state's insured property owners could pay more after a catastrophic hurricane season.
Legislation at fixing the Beach Plan was introduced in the House Insurance Committee, which will take it up again this week. The bill's balancing act includes a proposal to cap insurers' risks from a catastrophe and shift remaining rebuilding costs to all North Carolina policyholders.
There is now no limit on the price tag insurers could face, and several have warned they would scale back their business or quit North Carolina altogether without a cap on their liability. That could limit competition for consumers, Insurance Commissioner Wayne Goodwin said.
"I have no choice but to believe some of what the insurance companies say is true,'' Goodwin said. "This is not a perfect bill, but it has protections for consumers.''
The Beach Plan was created in 1969 as the insurer of last resort. But it has ballooned as insurance companies raised rates in storm-prone coastal areas after Hurricane Andrew in 1993 and politicians extended coverage to more people. The Beach Plan now insures 170,000 properties valued at nearly $74 billion. But it has the resources to cover just a fraction of that.
The bill would allow every property insurance policy's annual premium to rise by up to 10 percent if the Beach Plan's claims surpassed about $2.4 billion in available assets, reinsurance and additional charges assessed on property insurance companies doing business in the state.
Each insurer could be forced to pay for claims on Beach Plan policies under regulations thats allow them to do business in North Carolina. The assessments would be besides paying off their own policy holders who suffered damage from storms.
The statewide surcharge could mean up to an extra $65 a year for the average annual homeowners premium of about $650, the state Insurance Department said. North Carolina's homeowners insurance premiums have been among the country's lowest, with the state ranking 35th in 2006, according to the Insurance Information Institute.
Insurance industry lobbyist John McMillan said the statewide surcharge would only kick in if the Beach Plan's losses topped $2.4 billion.
"When you get calls about the possibility of surcharges in the western part of the state, it is very, very remote,'' McMillan said.
In comparison Hurricane Hazel, the monster 1954 storm that set the standard for damage in North Carolina, would have cost more than $6 billion in current dollars, Insurance Department lobbyist Rose Vaughn Williams said.
The measure also would:
- Change the program's name from Beach Plan to Coastal Property Insurance Pool, which is described as the insurance market of last resort for coastal properties.
- Make sure wind and hail coverage through the pool would always be 10 percent more expensive than the rate the state allows companies to charge. The pool's surcharge for homeowner's insurance that includes wind and hail coverage would be 20 percent.
- No longer distribute back to insurance companies surpluses accumulated during times the Beach Plan did not have to pay claims.
- Cut the maximum coverage on residential properties the pool would insure from $1.5 million to $750,000. The portion of a property's value that exceeds $750,000 would have to be insured through a costlier excess and surplus coverage. The pool would not insure the first $750,000 until the excess coverage was lined up.
- Direct the pool's wind and hail policies to include a deductible of at least 1 percent, which means the owner of a $300,000 home would have to pay at least the first $3,000 in damage out of pocket in the event of hurricane damage.
- Allow pool policies to be paid on an installment plan.
- List the types of damage-reducing construction features or improvements that policyholders can adopt in return for credits on their policy.
- Let the insurance commissioner forgive an insurer's assessments to the pool if the commissioner thought it would put the company into danger of insolvency.