Interview with South Carolina Commissioner Farmer

South Carolina Insurance Commissioner Ray Farmer has been the state’s insurance regulator since Governor Nikki Haley appointed him in 2012. Farmer has 30 years of experience in the industry and regulation. Most recently, he was a vice president for an insurer trade group, the American Insurance Association, and before that he served as Georgia’s deputy insurance commissioner in the enforcement division. Recently, he agreed to an interview with Insurance Journal ‘s Michael Adams. What follows is an edited version of his remarks.

How does having been both a regulator and industry representative affect your approach as commissioner?

Farmer: We have two goals at the department, one is to provide great customer service and the other is to grow the business of insurance in the state. We have two sets of customers. We have consumers who we serve on a daily basis. We have a consumer services area that answers calls and questions about insurance companies. Since I’ve been here we have changed our website so consumers can log on and let us know their concerns.

Our other set of customers is insurance companies. Our job is to make sure they can get their business plans to the marketplace and that the rates and forms we have to approve are turned around as quick as possible. Trying to reach a balance between those two sets of customers is something we take seriously as we try to make sure there is the affordability and availability in the marketplace. The more competitors we have here, the better off our consumers will be.

South Carolina has for the first time approved the use of computer models by property insurers in figuring their rates. Can you update us on this?

Farmer: Right before I became commissioner the department had engaged the services of an actuary, a structural engineer, and a meteorologist to review all four computer modelers (AIR, ARA, EQECAT, RMS) and the models they use. That was just underway when I became commissioner and I certainly endorsed and supported that effort. I was presented a report and I had the choice of using the benefit of that report with regards to rate filings in the future or being as transparent as possible. So we held a public hearing on those models and then we kept on with our review and had each modeler come back so that our market service staff could get as much input from them on what the models contained and how we and our consumers could benefit from their use. As a result, I believe the rates that are used and include those models serve our consumers well.

We have been asked by the state legislature to conduct a feasibility study to see if South Carolina needs to develop our own model like Florida has done. What we did was use the Florida model, but let me be crystal clear: we used South Carolina data. Now, we are conducting the feasibility study and plan to have it completed by the end of the year to present to the legislature.

How do you view the state’s current property market and the coverage along the state’s coastline?

Farmer: I have three top issues at the department and coastal property is at the top. In South Carolina 28 percent of our insured value is on the coast and anytime you have that much value along the coast, it is going to be a top issue at the department. What we are looking for are more competitors and like I said, one of our goals is to grow the industry.

So far this year, we have admitted 14 new property and casualty insurers and I believe the bulk of those are planning to write property coverage on the coast. So our market is fairly competitive. But while the coverage is there, we don’t like what people have to pay and it is a healthy amount. But the good news is the market is working because our windpool is losing business. They are not going to go out of business soon, but I believe they have lost 20 to 25 percent of their business over the last several years. I think it is a true sign of a competitive marketplace when the windpool is losing business.

How have changes in the National Flood Insurance Program under Biggert-Waters affected South Carolina?

Farmer: When the NFIP first made those changes it sent our state into chaos. We had plenty of examples of real estate deals that made it to closing only to fall through at the last minute when the prospective buyer saw how much their flood insurance was going to cost.

So South Carolina joined the suit filed by the Mississippi Department of Insurance against the Federal Emergency Management Agency. Fortunately, the U.S. Congress voted on a revised Biggert-Waters bill, but I think the jury is still out on how effective it will be.

We have seen the private market have somewhat of an interest in flood coverage. I don’t think we have seen enough interest for that to be a viable alternative, but I do think it is interesting to see that the private market is giving it serious study. Some members of the legislature have asked us to do a feasibility study on developing a residual market for flood insurance. We are in the process of doing that and will have it done by the end of the year.