A bill to rescue North Carolina’s coastal insurance plan handily passed the state Senate on Wednesday by a 42-5 vote, the same day it won approval from a Senate committee.
Because the Senate version differs from the House version over rates to be charged, it will need to be approved by the House before the measure can be sent to Gov. Bev Perdue for signing into law. That could happen today.
The measure (HB 1305) contains funding reforms for the state-backed coastal property insurer, the North Carolina Insurance Underwriting Association, known as the Beach Plan.
It includes a provision to cap at $1 billion private insurers’ liability if the state insurer’s funds fall short of what is needed to pay claims after a major storm. Private insurers could be assessed up to $1 billion, assessments that they would not be permitted to recoup from policyholders.
Private insurers say the certainty this liability cap provides is important to their ability to properly price policies. Under current law, private insurers’ potential liability is unlimited.
In the unlikely event that the Beach Plan still needs more money after assessing private insurers up to $1 billion, the burden would shift to all policyholders in the state. Under the bill, they could be surcharged up to 10 percent a year for any remaining claims following a major catastrophe.
The surcharges could begin only after the Beach Plan exhausts its surplus, about $2.4 billion in reinsurance and the $1 billion private insurer non-recoupable amount. This so-called catastrophe recovery charge would have to be clearly identified to policyholders on the premium statement, declarations page, or by some other electronic or written method.
The Senate bill would require that the Beach Plan’s rates for standalone wind and hail coverage be 5 percent more than those of private insurers, and rates for full homeowners policies that include wind and hail coverage be 15 percent higher. The House version calls for different figures: 10 percent higher for wind/hail and 20 percent higher for full homeowners.
The differential is meant to reduce the exposure of the Beach Plan by encouraging policyholders to buy policies from the private market rather than the more costly Beach Plan.
Also as part of the attempt to control the state-backed insurer’s exposure, the measure requires the Beach Plan to limit the coverage it offers on residential properties to $750,000 and on commercial properties to $3 million. Contents of habitational property could be insured only up to 40 percent of the home or building value under the bill.
If the value of the property exceeds the maximum coverage limits available from the Beach Plan, the property owner must arrange to purchcase the excess coverage in the private market before the Beach Plan can issue its policy.
Property owners who take steps to limit damages from storms would be eligible for mitigation discounts from the private markets as well as from the Beach Plan.
A 2008 actuarial analysis by the actuarial firm Milliman Inc. indicated that the Beach Plan is underfunded. An internal auditor to the Beach Plan noted that such deficits could threaten the plan’s ability to pay claims, bankrupt small insurers and force carriers out of the North Carolina marketplace.
According to the Milliman report, the Beach Plan has no more than $1.5 billion available to pay for hurricane losses. However, a large storm could likely cost more than $ 7 billion, leaving a $6.2 billion deficit and affecting the plan’s ability to pay claims.
The bill’s chief sponsor is Rep. Hugh Holliman (D- Lexington).
Insurers, concerned that failure to pass the bill would lead to insurance availability problems in the state, have been closely monitoring the bill’s progress.
“All North Carolina citizens, the insurance industry, and elected officials need a stable, solvent Beach Plan with a balanced approach to sharing financial responsibility for paying claims following a hurricane,” said Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC).
“The consumer protections found in HB 1305 will be beneficial for homeowners across the state – from Manteo to Murphy,” said Lynn Knauf, regional manager for the insurer trade group, the Property Casualty Insurers Association of America (PCI).
Topics Carriers North Carolina Property Politics
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