North Carolina homeowners could see their first rate increase in four years as the state’s rating bureau called for a statewide average 17.7 percent increase in loss cost rates.
The North Carolina Rate Bureau filed for the rate increase on behalf of all property insurers. If approved as filed, it would increase loss cost rates by 17.7 percent. That figure includes a homeowners’ rate hike of 17.4 percent, a rental rate increase of 30 percent and a 29.5 percent increase in condominium coverage.
Rate Bureau General Manager Ray Evans said the rate increase is needed due to several factors including the rise of reinsurance. He said reinsurance is a major concern for insurers such as the North Carolina Farm Bureau with a concentration of policies in the state.
“The cost of reinsurance has increased by 65 percent since the last filing in 2008 and it is a challenge to fine adequate reinsurance,” said Evans.
Evans also said that insurers’ claims costs have risen as the claims frequency trend has been moving upward, along with the severity of claims. In non-hurricane related claims, the frequency has increased by 14 percent and the severity by 18 percent.
The last time North Carolina’s property rates increased was in 2009, when rates increased by 4.09 percent. Additional rate increases have been needed but the state’s cumbersome ratemaking methodology and litigation have slowed the process, according to the rate bureau manager. For example, the bureau filed for a 20.9 percent increase in dwelling property rates in January 2011, which is still pending.
North Carolina’s property ratemaking methodology is unlike most around the country. The rate bureau files rates on behalf of the industry and then each individual insurer uses the approved loss cost rates and adds its claims handling costs, administrative costs, and profit and contingency needs to arrive at a final rate. While insurers cannot exceed the loss cost rate, they can file for a discount in the form of rate deviations.
As a result of the ratemaking process, Evans said property insurers’ rate needs have outpaced the state approved rate, a situation that he said will remain unchanged even if the current filing is approved in a timely manner. He said that the effective date of the filing is not until June 1, 2013, meaning that many homeowners will not see the impact of the new rates until 2014.
“The rates have literally been inadequate since the early 2000s,” Evans said.
Already, some consumer groups have come out against the proposed rate increases.
The Business Alliance for a Sound Economy, a consumer group representing the state’s coastal counties, is opposed to the proposed rate, claiming it unfairly penalizes coastal policyholders.
BASE Governmental Affairs Director Tyler Newman said the disparity between rates in the inland counties and coastal counties is unwarranted.
For example, under the current filing, a home valued at $75,000 in the inland areas will see its premiums increase by as little as 1.2 percent, from $364 to $369. In the coastal areas, that increase is projected to be as high as 30 percent, adding more than $300 in additional cost for the same policy.
“It is the disparity of costs that is so disconcerting,” said Newman. “Everyone should pay the same for the same perils.”
The new rate filing is the first since lawmakers earlier this year took steps to improving the ratemaking process by giving policyholders more input.
Under the law, the property insurance rate filing is open to the public, which will have 30 days to submit comments. Previously, the public was only allowed to make public comments in the event the insurance commissioner decided to hold a public hearing.
The North Carolina Department of Insurance released a statement saying that in addition to accepting written comments, Insurance Commissioner Wayne Goodwin is planning to hold a public comment session on October 17.
“This gives citizens a voice they haven’t had before,” said Newman,
In the event that Goodwin and the rate bureau cannot agree on a final rate, a public hearing will be held that will offer North Carolina residents another chance to voice their concerns.
Under the new law, Goodwin will have the final say on rates as long as they don’t fall below existing rates and above what the industry is requesting.