North Carolina Looks for Coastal Insurance Fix

As Florida has been confronting its state’s underfunding for catastrophes, North Carolina is also grappling with how to fill the gap between potential liabilities and available monies for its market of last resort for coastal property insurance, the Beach Plan.

North Carolina policymakers don’t want to see coastal property owners priced out of the insurance market, yet they also don’t want to see insurers exit the market out of fear of giant assessments to pay for losses after a storm.

The Beach Plan insures 170,000 properties valued at nearly $74 billion. But it has the resources to cover only about $2.4 billion and even that would require millions of dollars in assessments on private insurers.

Last month, one part of a solution went into effect as coastal insureds started seeing rate hikes up to 30 percent that were approved by regulators and the courts..

Now lawmakers on the House Insurance Committee are considering a proposal which would, among other things, cap insurers’ potential assessments from catastrophes at $1.2 billion and surcharge all policyholders including those not on the coast up to 10 percent more if losses from a storm exceed Beach Plan funds.

The statewide surcharge could add up to $65 to the average homeowners premium of about $650 (among the country’s lowest), according to the state insurance department said. It would kick in only if the Beach Plan’s losses topped $2.4 billion.

Overall, the measure also would:

• Make sure wind and hail coverage through the pool would always be 10 percent more expensive than the rate the state allows companies to charge. The pool’s surcharge for homeowner’s insurance that includes wind and hail coverage would be 20 percent.
• No longer distribute back to insurance companies surpluses accumulated during times the Beach Plan did not have to pay claims.
• Cut the maximum coverage on residential properties the pool would insure from $1.5 million to $750,000. Anything above $750,000 would have to be insured through excess and surplus coverage. The pool would not insure the first $750,000 until the excess coverage was lined up.
• Direct the pool’s wind and hail policies to include a deductible of at least 1 percent.
• List the types of damage-reducing construction features or improvements that policyholders can adopt in return for credits on their policy.
• Let the insurance commissioner forgive an insurer’s assessments to the pool if it would put the company into danger of insolvency.

Farmers and Encompass have already quit North Carolina and officials fear other could follow them if the state does not limit their liability.

Insurance Commissioner Wayne Goodwin does not want to see competition reduced. “I have no choice but to believe some of what the insurance companies say is true,” Goodwin told The Associated Press. “This is not a perfect bill, but it has protections for consumers.”