Exclusive Interview: North Carolina Commissioner Goodwin on Home, Auto Markets

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Recently re-elected North Carolina Insurance Commissioner Wayne Goodwin is more focused on reform of the state’s homeowners insurance market than he is on auto insurance.

As was the case four years ago when he first assumed office, Goodwin sees the homeowners market as the biggest challenge even though the state has taken steps to improve the market since 2008. He is a bit concerned that recent calls for auto insurance reform may crowd out consideration of further changes to the homeowners system, which he believes is more in need of attention.

“When I was first elected, I rightly declared that coastal insurance and homeowners insurance was a ticking time bomb, and over the last four years, we were able to, I believe, lessen the fuse or at least slow the ticking I guess of that time bomb. But what we’ve seen happen in that companies have begun to write less in North Carolina,” Goodwin said.

“We still have several hundred companies that are licensed to write homeowners insurance here, but they are increasingly reluctant to write on the coast and particularly east of Interstate 95. So it is certainly still a big issue and I consider it, though not a ticking time bomb, but I still consider it I would say the number one priority for my new administration.”

Goodwin shared his thoughts on the state’s homeowners and auto insurance markets and other topics, including workers compensation, the medical loss ratio (MLR) and health exchanges, listening to agents and his own political future as part of a wide-ranging interview with Insurance Journal.

Goodwin, a Democrat, who was re-elected to his second term in November, has not approved a rate increase for homeowners insurance since he took office but that could now change under a revised system that gives him more leeway.

Thanks to a legislated reform last year, Goodwin’s office now has more authority over homeowners rates than it did when he first took office. He used to have to either accept the industry’s increase as recommended by the North Carolina Rate Bureau, or agree to the figure recommended by the independent actuary on the other end. He had to choose one or the other.

Now he can approve a compromise between the two extremes, much as he is able to do in auto insurance. His expanded power only applies to increases; he can’t order a rate cut. “That was done as an acknowledgement that North Carolina as a coastal state is needing to address rates and the like because of what’s happening on the coast,” he said.

There is a 17.7 percent homeowners rate increase under consideration. A hearing has been scheduled for June.

In 2009, the state also approved some changes to the Beach Plan, which provides coverage for coastal properties. The reforms included limiting the coverages the residual insurer could offer and requiring insurers to offer credits for storm mitigation.

Goodwin thinks this has helped a bit.

“The evidence is mixed. The short term results were very positive. It kept companies from leaving the state. It stopped the exodus of companies that we feared, which we had seen happen in other states, and we saw more companies begin to seek licenses to write homeowners insurance in the state,” he told Insurance Journal.

“Where the evidence is mixed is that now that we’re several years out, the costs of reinsurance are bearing down on individual companies and there’s been a returned growth in our Beach Plan. I anticipate this legislative session, and perhaps the next one as well, there will be additional reforms to move it further down the road.”

Goodwin has in the past recommended a tax credit for insurers willing to write along the coast.

“I still believe that’s a good tool to have in the toolbox. I had suggested that several times over the last few years, but the state of North Carolina along with other states have had budget concerns. The legislators were reluctant to consider any additional tax credit. Now, as we see the light at the end of the tunnel with the economy hopefully improving, perhaps that will bode well for potential tax credits as an additional incentive for companies to write.”

The elected commissioner offered general guidance for state lawmakers when asked what the next property insurance reforms should be.

“That is in part a legislative decision. Any answer that is given on that should not just be on rates,” he said. “We need to look at the operations of the Beach Plan. We need to look at what it will take for more companies to write, particularly in the coastal area. It can’t just all be on rates. We need to look at mitigation credits, we’d look at incentives for companies who write where there’s additional tax credits perhaps. There’s also been discussions of new financing options for the Beach Plan, so they can reduce its reinsurance expenditures.”

He said the goal should be to give homeowners more options.

“Every single state has had the same problem in one degree or another, so I want to make sure that we have as much competition as possible and get the property owners of this state some options and choices so that both consumers and the marketplace can equally say that North Carolina is improving, but we still have some work to do,” he told Insurance Journal.

Auto Market

While the homeowners market is his priority, Goodwin expects he will also be talking about the auto insurance system during his second term as some in the industry have been calling for a more competitive rating system than the current bureau approach.

North Carolina is the last state with a system that requires auto insurers to agree to one industry-wide rate increase or decrease rather than allowing individual company rate proposals. The state also has a reinsurance facility through which insurers pool those they consider high risk drivers, who pay higher premiums. The facility currently has about a quarter of all drivers insured through it– many are considered high risk by insurers even though they do not have bad driving records.

Overall, North Carolina motorists had the lowest auto insurance rates on the East Coast except for Maine in 2010, according to the National Association of Insurance Commissioners. The system manages to keep down the number of uninsured drivers, which helps keep costs down for everybody.

While consumers appear to be happy with the auto system, the insurance industry is split even though it’s profitable. Some parties, including top writer Nationwide and other insurers with a strong foothold in the state, like the current system.

Others claim the system limits consumer choice and disadvantages good drivers, requiring them to pay more than they should.

“There are a number of drivers who are not adequately assessed at the rates that they should be paying,” said Oyango Snell of the Property Casualty Insurers Association of America, which is part of a coalition seeking changes. “It is not fair to subsidize somebody else’s bad driving.”

State Farm, Allstate, Geico and Progressive are among the carriers that want the state to move toward a system with competitive rates among insurers.

Goodwin acknowledges that the current auto system is not perfect but says it’s important to focus on more than just price.

“Anything we can do to help provide customers, and the companies, flexibility is a good thing. Right now, most people are focusing on price, and as we go through and look at our system, making sure that any changes we make don’t cause the market to become unstable,” he said. “We’ve seen some states that have reformed their auto insurance rating system and the number of companies dropped and rates skyrocketed. So we’re trying to look at what changes might there be that keep rates low for the good drivers and then also better defined what is not a good driver.”

He said he expects there will be some changes but he just wants to make sure that legislators understand that insurers clamoring for change “want to be able to personally decide what’s a bad driver, and the public may not realize there are more people that would be considered bad drivers under the proposal than what they would want.”

In short, he’d rather not focus on auto insurance right now.

“Well, particularly since the crisis is in homeowner’s insurance. I’m concerned that the opportunity to address the true crisis is maybe minimalized because of the attention to a line of business that’s very profitable here in North Carolina for the industry, and quite satisfactory, if not pleasing, to the customer. That’s the concern I’ve got, is that we need to focus on the crisis while we can.”