North Carolina Beach Plan Insurance Reforms Become Law

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 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 measure is intended to reduce the exposure of and prevent a funding shortfall in the Beach Plan, which insures 170,000 coastal properties valued at nearly $74 billion.

The measure was supported by lobbyists for the property/casualty insurers. According to an industry-backed 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.

The bill addresses this shortfall by capping private insurers’ liability at $1 billion if the state insurer’s funds fall short and providing for surcharges on all policies in the unlikely event even more funds are needed.

Private insurers say the certainty the $1 billion liability cap provides is important to their ability to properly price policies. Several insurers had 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.

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.

“HB 1305 will reform the Beach Plan, protect consumers across the state and improve the property insurance market,” said David Sampson, president and CEO of the insurer lobby Property Casualty Insurers of America..

The law has already convinced a subsidiary of AAA Carolinas to start writing property coverage in the state.