Posted by Benji Riggins on January 19, 2010 under Insurance News | 
A North Carolina appeals court is weighing whether to freeze or even reverse homeowners’ insurance premiums that soared by up to almost 30 percent along the coast while sliding by a third in counties farthest from the shore.
A three-judge Court of Appeals panel heard arguments last week in a lawsuit by coastal communities trying to overturn a deal struck in late 2008 between former Insurance Commissioner Jim Long and the North Carolina Rate Bureau, which represents insurers.
The municipalities argued Long approved the increases before coastal residents knew insurers had requested them and set rates at unreasonably high levels.
Attorneys for the state agency and the Rate Bureau told the judges state law makes the insurance commissioner responsible for representing consumers, and rate settlements can’t be appealed to the court by anyone else.
“Suppose the commissioner gets it wrong?” Judge Linda Stephens wondered.
“I don’t know of anywhere else where an order can be issued and there’s no right to appeal that,” Judge Martha Geer said.
A court ruling could come later this year.
Long’s decision meant that homeowners policies that were written or renewed beginning May 1 for coastal properties from Sunset Beach to Morehead City could jump 29.8 percent. Policy premiums for homes on the Outer Banks counties of Currituck, Dare, Hyde and Pamilco were allowed to rise by 22 percent, a big jump but a bargain compared to the doubling of rates that insurance companies originally sought.
The deal also allowed homeowners in 32 western counties to cut their premiums, in two counties by up to 6 percent.
The rate changes included policies written by both private insurance companies and the Beach Plan, the state’s property insurance provider for coastal properties.
The General Assembly last summer was forced to shore up the overextended Beach Plan by capping potential costs to insurers and putting every property owner in the state on the hook from a disastrous hurricane season. Some insurers had threatened to quit doing business in the state to limit their exposure to Beach Plan losses unless the program was bolstered, current Insurance Commissioner Wayne Goodwin warned last summer.
Despite the rate increases and Beach Plan reforms, State Farm decided to quit the homeowners insurance business on North Carolina’s barrier islands, spokesman Russ Dubisky said. The company is dropping about 1,600 policies that come up for renewal beginning May 1, he said.
State Farm believes its risks on the exposed islands is too great, and will also retrench in other coastal states, Dubisky said.
“We are looking to manage our exposure in other catastrophe prone areas as well as North Carolina,” Dubisky said.
By Emery P. Dalesio
January 19, 2010
Posted by Benji Riggins on August 28, 2009 under Insurance News |
North Carolina Governor Bev Perdue has signed into law legislation to shore-up the state’s backup coastal insurer and reduce the liability of private insurers should a major catastrophe strike the state.
House Bill 1305 also sets limits on the coverage that can be sold by the North Carolina Insurance Underwriting Association, known as the the Beach Plan, and requires insurers to offer discounts for storm mitigation efforts by policyholders.
The signing came more than two weeks after House and Senate lawmakers reached agreement on the bill, which was sponsored by Rep. Hugh Holliman in the House and led by Sen. Tony Rand in the Senate.
The bill (HB 1305) that is now law is intended to reduce the exposure and prevent a funding shortfall in the Beach Plan, which insures 170,000 properties valued at nearly $74 billion in 18 coastal counties.
The measure was supported by lobbyists for the property/casualty insurers who said it was necessary to provide certainty and stability in the private marketplace.
Momentum for the reform was helped by an actuarial report, commissioned by the Property Casualty Insurers Association of America (PCI), that showed the Beach Plan was seriously underfunded. According to that report, the Beach Plan has no more than $1.5 billion available to pay for hurricane losses. However, a large storm could cost more than $7 billion, leaving a $6.2 billion deficit and affecting the plan’s ability to pay claims.
The bill addresses this concern by capping private insurers’ liability at $1 billion if the state insurer’s funds fall short and providing for surcharges on all policyholders in the unlikely event that there is such a devastating storm that even more funds are needed
Private insurers say the certainty the $1 billion liability cap provides them is important to their ability to properly price policies. Several insurers have stopped writing business in the state out of concern over the uncapped liability.
Any surcharges on policyholders statewide would be limited to no more than 10 percent annually and 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.
The law also requires the Beach Plan to limit the coverage it offers on residential properties to $750,000 and on commercial properties to $3 million. It now offers limits twice those amounts. 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 new 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.
The Beach Plan’s rates for standalone wind and hail coverage must be 5 percent more than those of private insurers, and rates for full homeowners policies that include wind and hail coverage must be 15 percent higher. The industry had preferred that Beach Plan rates be even higher to further encourage policyholders to buy policies from the private market rather than the more expensive state insurer.
The new law requires the private market, as well as the Beach Plan, to file rating plans including mitigation discounts.
“Governor Perdue has taken an important step today in securing the financial stability of North Carolina following a hurricane or major storm,” said David Sampson, president and CEO of the insurer lobby PCI. “HB 1305 will reform the Beach Plan, protect consumers across the state and improve the property insurance market.”
The law has already convinced one insurer to begin writing in the state. A subsidiary of AAA Carolinas said its decision was in response to the passage of HB 1305.
Posted by Benji Riggins on August 8, 2009 under Insurance News |
The North Carolina General Assembly has approved a bill to reform the state’s coastal insurance system that caps private insurers’ liability for any funding shortfall in the state-backed Beach Plan, reduces coverage for property owners who get coverage in the Beach Plan and requires insurers to offer discounts for storm mitigation efforts by policyholders.
The bill (HB 1305) is intended to reduce the exposure and prevent a funding shortfall in the North Carolina Insurance Underwriting Association, known as the Beach Plan, which insures 170,000 properties valued at nearly $74 billion in 18 coastal counties.
Yesterday, just before 5 p.m., the House concurred in a 92-19 vote with a Senate version of the bill. The measure now goes to Gov. Bev Perdue, who can sign it, veto it, or let it become law without her signature.
The measure was supported by property/casualty insurers whose lobbyists said it was necessary to provide certainty and stability in the private marketplace.
“Yesterday was good day for all insurance consumers in North Carolina. Elected officials have realized how out of kilter the current Beach Plan is and have taken steps to begin to rectify the situation,” said Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC).
While overall supportive of the reforms, the insurance industry came away slightly disappointed that a key rate differential provision backed by the House was watered down in the final version. The final bill requires 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– which is what current rules say. The industry preferred the House version that had called for different figures: 10 percent higher for wind/hail and 20 percent higher for full homeowners.
The rate 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 expensive state insurer.
Reynolds conceded that the lower rate differential “will make it more difficult to quickly return the Beach Plan to the market of last resort.”
But she said the overall measure is the beginning of “many more incremental steps toward strengthening and diversifying not only the coastal insurance market in North Carolina, but the entire market in the state.”
The bill will require the private market, as well as the Beach Plan, to file rating plans including mitigation discounts.
Momentum for the reform was helped by an actuarial report, commissioned by the Property Casualty Insurers Association of America (PCI), that showed the Beach Plan was seriously underfunded. According to that report, the Beach Plan has no more than $1.5 billion available to pay for hurricane losses. However, a large storm could cost more than $7 billion, leaving a $6.2 billion deficit and affecting the plan’s ability to pay claims.
The bill addresses this concern by capping private insurers’ liability at $1 billion if the state insurer’s funds fall short and providing for surcharges on all policyholders in the unlikely event that there is such a devastating storm that more funds are needed.
Private insurers say the certainty this liability cap provides them is important to their ability to properly price policies. Several insurers have stopped writing business in the state out of concern over the uncapped liability.
“Lawmakers recognized that the Beach Plan is not financially stable which could hurt insurance policyholders across the state,” said Lynn Knauf, regional manager for PCI. “The General Assembly has responsibly chosen to solve the property insurance crisis before the storm, instead of after a devastating event, unlike the fate of some other coastal states.”
Any surcharges on policyholders statewide would be limited to no more than 10 percent annually and 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 their premium statement, declarations page, or by some other electronic or written method.
As part of an 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. It now offers limits twice those amounts. 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 new 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.
“This is a strong reform bill,” said Raymond G. Farmer, assistant vice president for the American Insurance Association’s southeast region. “It meets two key goals: first, putting the Beach Plan on a stronger financial footing, and second, giving private market insurers greater certainty as to their ultimate financial obligations should a major storm hit that depletes the Beach Plan’s claims paying resources.”
HB 1305 was sponsored by Rep. Hugh Holliman in the House and lead by Sen. Tony Rand in the Senate.
