North Carolina Agrees to 4% Home Rate Hike

North Carolina Insurance Commissioner Jim Long has agreed to permit homeowners insurance companies to hike their rates an overall statewide average of 4.05 percent beginning May 1.

This is below the statewide increase than the 19.5 percent increase originally proposed by the insurers’ North Carolina Rate Bureau. Long said his deal is $238 million less in premium than what the industry sought.

“There has been a lot of speculation surrounding this homeowners rate filing, but I feel that we’ve reached a settlement that is fair to both consumers and insurance companies in North Carolina,” said Long. “No one likes to see their insurance rates go up, but the industry made a strong case for allowing some increases this year. The silver lining is that most consumers won’t see nearly the increases that were initially proposed.”

The settlement also realigns several insurance territories along the coast. The realignment divides former Territory 43, which included many of the coastal counties, into two separate territories — 43 West and 43 East.

“It makes sense to the department that homeowners who live farther inland should pay less for insurance because they have less exposure to the impact of a hurricane. The realignment of the territories kept this in mind and was a way to group the geographically-similar parts of the coastal counties, creating fairer rates for homeowners at the coast,” Long said.

Insurers cited rising construction and repair costs as among the reasons they need a rate hike.

Meanwhile, a legislative panel has heard testimony on ways to fund and reform the state’s property insurer of last resort, the Beach Plan. The committee, chaired by Sen. Tony Rand and Rep. Hugh Holliman, has developed initial recommendations but has more work to do, according to the Property Casualty Insurers Association of America (PCI).

A recent Milliman study, commissioned by PCI, found that the Beach Plan (officially the North Carolina Insurance Underwriting Association) is not financially prepared to weather a major storm and this could have serious implications. The Beach Plan was originally begun to provide windstorm coverage to coastal homeowners who can’t obtain it through the private market. But it has become the first choice for most coastal homeowners and actuaries now warn its rates have not been raised to cover the high risk of loss.

The Milliman report showed that the Beach Plan insures almost $70 billion worth of coastal property and has been growing by nearly $1 billion each month. Yet, it has the resources to pay only about $1.5 billion in damages. A large storm could likely inflict more than $7 billion in damages.

An internal auditor noted that such deficits could threaten the plan’s ability to pay claims, bankrupt small insurers and force carriers out of the estate.

Robert Herlong, regional manager for PCI, said insurers are “encouraged that legislators understand the scope and importance of the problem and are moving swiftly to address it.”