NAII Says N.C. Bills Harmful to Inland Policyholders

Two bills backed by the North Carolina Department of Insurance that would launch a reinsurance facility for coastal homeowners’ insurance would instead create a subsidy system in which inland policyholders will pay for the additional insurance premiums of expensive seaside homes, according to the National Association of Independent Insurers (NAII).

“The reinsurance program promoted by SB 1279 and HB 1586 will end up costing most North Carolina homeowners more in insurance premiums,” Greg LaCost, counsel for the NAII, remarked. “A better approach would be to modify the existing plans to more accurately reflect the risks of owning a home on shore.”

North Carolina already has two facilities for addressing residual market property insurance: the Beach Plan and the state FAIR plan. These programs may need improvement, but can be modified more easily and inexpensively than launching a new program, LaCost said.

There are several problems inherent with a reinsurance facility, LaCost noted:

• Because insurers in the facility would only be allowed to charge “manual” rates, underwriting would be weaker than in the voluntary market, leading to significant losses and almost immediate subsidization.

• Insurers could avoid or pull out of the North Carolina market if the facility charges large assessments that they cannot recoup because of the type of exposure and large catastrophic loss potential.

• A large percentage of the homeowners’ market could end up migrating to the facility because rates will not reflect the actual cost of risk.

• The facility will not address the “immediate binding” problem since the ability to bind coverage will not be any different in this program than in the current system.

As an alternative, NAII supports the modification of the Beach plan, which would provide an immediate market for independent agents and allow homeowners already in the Beach plan to have a single policy, LaCost noted.

However, the product cannot be priced at the “manual” rates of the voluntary market as the Beach plan should be the market of last resort, not a competitor to insurers willing to write coverage in the coastal areas, he said.

NAII is recommending a 25 percent surcharge that could be modified after three years of experience with the product to reflect the actual amount necessary for the program to be self-supporting, similar to the system in place in South Carolina.

“The cost of insuring multi-million dollar homes should be borne by those living on the coast, not by insurers doing business in the state or homeowners who do not contribute to the problem,” LaCost said.

Additionally, NAII supports an initiative that would give companies an incentive to write more coastal coverage, such as modernization of the rating and filing laws of North Carolina for companies that write a certain percentage of coastal coverage or match their interior writings of coverage.

“South Carolina modernized its auto laws in 1999 and rates have become more competitive as a result,” LaCost commented. “North Carolina’s failure to modernize its insurance laws, coupled with the proposed reinsurance facility, could drive companies from the state’s property insurance market.”

Topics Reinsurance North Carolina Homeowners