Legislative efforts to freeze big insurance rate increases for coastal homeowners risk making policies less available and more costly for all state residents, North Carolina’s new insurance commissioner said.
Such measures would hold off increased surcharges of up to 25 percent for homeowner’s coverage and up to 15 percent for wind damage that the beach plan charges above what regular insurers can offer. The increased surcharges took effect with new policies written since Feb. 1. Lawmakers would push that date to May 1, 2011, for primary residences.
“If those rates were to be stopped,” Insurance Commissioner Wayne Goodwin said, “it could restrict or stop homeowners insurance writings in this state.”
State lawmakers have reacted to constituent complaints about a double-whammy of insuring property along the coast.
In November, former Insurance Commissioner Jim Long said the state’s Beach Plan would increase surcharges from up to 15 percent above what regular insurers can offer to as much as 25 percent over. The Beach Plan also raised wind damage deductibles from as little as 0.5 percent of a home’s value to 2 percent.
The increase was described as needed to beef up the Beach Plan, designed to be the insurer of last resort when it was created 40 years ago to provide wind damage coverage for homeowners on North Carolina’s barrier islands. It has expanded dramatically so that it now insures 170,000 properties valued at $72 billion in 18 coastal counties.
The plan’s administrators said last year they were prepared to meet $2.4 billion in claims from one or a series of storms in a year, but that would include charging insurance companies hundreds of millions of dollars in assessments to cover policyholders.
Then in December, the Insurance Department announced a deal allowing a statewide rate increase that averaged out to about 4 percent. That included reduced premiums for homeowners in central and western counties and increases on coastal homes of up to almost 30 percent in some areas. The changes start with policies written after May 1. Insurers had sought an average statewide rate increase of 19.5 percent.
As a result, the cost of insuring a $150,000 frame house in Wilmington would increase from about $1,288 a year to $1,758 a year, the Insurance Department said. At the same time, the homeowner’s out-of-pocket deductible would rise from $750 to $3,000.
Legislators also may consider narrowing the plan’s potential liabilities. A legislative study committee last month recommended reducing the plan’s maximum property policy coverage and capping how much insurance companies would have to pay if the Beach Plan ran out of money to meet all claims.
The rate increases were needed to improve the plan’s financial readiness to rebuild hurricane damage, Long said last year. Goodwin said the moves also were needed to keep insurers from quitting the North Carolina market, thinning competition and raising costs. Several insurers have quit or restricted insuring North Carolina homeowners since August and the trend was threatening to accelerate without the agency’s action, Goodwin said.
“This is to protect us from a domino effect that could affect all of North Carolina,” Goodwin said.
State Sen. Jean Preston, R-Carteret, and other coastal lawmakers have proposed excluding primary homes along the coast from the rate increases to protect year-round residents who are not the well-heeled owners of resort rental properties. From urban neighborhoods in Morehead City to trailer parks in Salter Path, thousands of homeowners were struggling to hang on to their homes in the face of the global recession, said Preston. Now, many face large insurance rate increases at the same time incomes are down and the market for coastal real estate has sunk, she said.
“We’re in a bind. We can’t afford it but we can’t sell it,” Preston said.
Blocking the rate increases would cause insurers to re-examine whether they wanted to do business in North Carolina, said Bob Herlong, a regional manager for the Property Casualty Insurers Association of America.
“If it were blocked, that would obviously be very, very disappointing to us,” Herlong said.
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