North Carolina Urged to Reduce Beach Plan Coverage, Cap Insurers’ Liability

North Carolina’s state-sanctioned property insurance program at the coast should reduce its maximum property policy coverage to relieve its potential liability in a massive hurricane, a legislative study committee recommended this week.

The panel also suggested capping how much insurance companies would have to pay should the so-called Beach Plan not have enough money to meet all claims, although no numerical limit was approved.

The suggestions being sent to the full Legislature to consider when it reconvenes next week are designed to shore up the plan, whose coverage has grown exponentially over the past decade, and to encourage the insurance industry to write their own policies in the region.

“Certainly this will reduce the liability of the Beach Plan,” said Rep. Hugh Holliman, D-Davidson, a co-chairman of the committee. “Maybe it doesn’t do it all, but it certainly has reduced the chance of a big liability.”

A 100-year storm could rack up more than $3 billion in insured losses if it struck North Carolina, according to data.

But legislators and coastal residents said the committee’s recommendation — particularly to reduce maximum coverage on residential properties from $1.5 million to $750,000 — will require homeowners to look for expensive coverage to cover above what the Beach Plan wouldn’t.

“It is going to result in a further increase of premium for people to be adequately insured on the coast,” said Charles Evans, an attorney in Dare County and committee member. “I don’t think we are addressing fairly and comprehensively what we need to be doing.”

The proposal follows changes approved in the past two months by then-Insurance Commissioner Jim Long, one which could raise premiums in some coastal areas by nearly 30 percent.

The Beach Plan began in 1969 and was considered to be the insurer of last resort when traditional insurers wouldn’t agree to take on potential liabilities on North Carolina’s barrier islands. The plan has since expanded to 18 coastal counties and began providing homeowners’ coverage and not just protection for wind damage. The program now includes 170,000 coastal properties valued at $72 billion, up from $3.6 billion in 1995.

Plan leaders have said it’s prepared to meet $2.4 billion in claims from one or a series of storms in a year, but that would include charging hundreds of millions of dollars in assessments to insurance companies.

The plan is ready to purchase more reinsurance to cover additional potential losses. Starting next month, it must charge 15 percent or 25 percent above what regular insurers can offer, compared to the current 5 or 15 percent.

The committee recommended that the Beach Plan has the ability to pay losses for a 100-year storm by May 2010 and a 150-year storm by 2022.

Insurance companies have wanted the higher differentials to make their policy offerings more attractive to residents. The companies, however, can offer high-premium policies to wealthier homeowners.

The committee rejected a proposal by Rep. Bruce Goforth, D-Buncombe, to bar the Beach Plan from issuing policies on secondary vacation homes in the 18-county coastal region. He said these homeowners should be forced to buy the higher-priced private policies.

The insurance industry was pleased with a recommendation that would limit how much insurers would have to pay for Beach Plan claims if it ran out of money before being able to recoup additional assessments from policyholders statewide.

At least two insurers have pulled out of North Carolina or stopped writing policies because of the uncertain financial picture a big storm presented them.

“We are seeking an approach that will protect families and homes, ensure Beach Plan claims are paid, and restore a stable insurance marketplace for the state,” said Jessica Hanson with the Property Casualty Insurers Association of America, a trade group.