North Carolina Delays Rate Hearing on Dwelling Fire, Extended Coverage Policies

A public rate hearing on a proposed increase in North Carolina’s dwelling fire and extended coverage policies has been delayed until July 25.

North Carolina Insurance Commissioner Wayne Goodwin announced the change saying that the North Carolina Rate Bureau (NCRB) requested more time to make changes to its initial filing.

The NCRB is an independent organization that represents all property insurers doing business in the state. In January, the bureau requested a statewide average 20.9 percent increase. After further review, the bureau modified its increase to 20.5 percent. If approved, the increase would affect some 570,000 policyholders.

Dwelling fire policies are different from traditional homeowners’ policies in that they offer fewer coverage options and are sold to properties that would otherwise not qualify for a standard homeowners policy. The policies are usually offered to non-owner occupied residences including rental properties and investment properties. A dwelling fire policy typically does not include liability coverage. Extended policies generally include coverage for damage to a physical dwelling due to wind, hail, fire, smoke, riot, civil commotion, and aircraft and vehicle coverage.

Goodwin called for the public hearing after 800 policyholders’ submitted written comments or public testimony. The rate bureau’s initial filing called for a decrease in dwelling fire coverage. Based on a total state premium of $84 million, the bureau’s indicated rate change on those policies would have been minus 6.6 percent. That number, however, was more than offset by the proposed increase in extended coverage policies. Based on a total statewide premium of roughly $151 million, the bureau called for a 110.3 percent increase.

Several issues are expected to be raised at the hearing, including the following:

• Old data: In the ratemaking process, the data takes into account the two most recent years of complete data. The filing is based on data from 2007, although data from 2008 and 2009 are available.

• Risk factors: The filing includes various risk factors used to calculate rate changes. The NCRB claims these factors, such as the net cost of reinsurance and compensation for assessment risk, are a necessary cost of business. Regulators, however, believe the factors are not justified.

• Profit methodology: The NCRB uses a methodology that is not allowed in North Carolina and has been successfully challenged in a 2001 auto insurance case, which was decided by the North Carolina Supreme Court. The department says the methodology results in an excessive profit factor of 9.5 percent.

• Deviations: The NCRB includes a factor for deviations, which typically are discounts paid to policyholders for good loss records. The inclusion of a specific factor for deviations previously has been disallowed numerous times in auto filings heard by the North Carolina Supreme Court.

• Hurricane model: The hurricane losses for extended coverage are derived using a hurricane model that does not appear to be adequately documented or justified.

Goodwin will hear from both the bureau and state Department of Insurance experts before making his decision. If the NCRB disagrees with Goodwin’s decision, it can do so through the courts. During that time companies can raise rates although any premiums collected above the approved rates must be kept in an escrow account. If the court finds against the NCRB, the escrowed money must be returned to policyholders.

Topics North Carolina Homeowners