North Carolina House Committee Advances Beach Plan Reforms
The North Carolina House Insurance Committee has unanimously approved legislation that attempts to spread the pain should a major storm cause losses that exceed existing private and public insurance funds.
The legislation (HB 1305) would cap the liability of private insurance companies for any deficit at the state-backed insurer of last resort known as the Beach Plan at $1 billion and it would allow for a surcharge on all property insurance policyholders of up to 10 percent of their premium should losses exceed what the Beach Plan and private insurers cover.
Estimates suggest the surcharge could be triggered if losses exceed about $2.4 billion. An insurance actuarial firm report found that the premiums that have been charged by the Beach Plan for years are too low and that as a result the plan is inadequately funded to handle a major storm.
The measure also includes a provision to reduce the Beach Plan’s exposure by lowering the maximum coverage limits property owners could get from the plan from $1.5 million to $750,000. Property owners would have to obtain any coverage they need above $750,000 from private insurers, most likely surplus lines insurers.
The bill, sponsored by Rep. Hugh Holliman (D- Lexington), now moves to the House Finance Committee.
At this week’s hearing, the bill received some insurance industry support from the Property Casualty Insurers Association of America (PCI).
“We wholeheartedly support the effort to enact meaningful reform of the Beach Plan and its funding structure, and we believe that the bill before you is a step in the right direction,” said Lynn Knauf, regional manager for PCI.
The provisions in the bill mirror recommendations of the Joint Select Study Committee on the Potential Impact of Major Hurricanes on the North Carolina Insurance Industry that were presented to the Legislature in January.
While offering general support, Knauf told the lawmakers that the industry is concerned that some of the joint select committee’s specific recommendations have “been weakened by, or removed from, the latest draft entirely.”
The Beach Plan was established in 1969 to provide just windstorm coverage to coastal homeowners in the barrier islands who could not obtain it through the private market. The scope of the plan has since been expanded to include 18 coastal counties and a full homeowners policy.
Today, the Beach Plan insures $73.6 billion worth of coastal property and is growing fast. Yet, the Beach Plan has the resources to pay only about $1.6 billion in damages, according to its own reports.
A report prepared by the actuarial firm Milliman estimated that a large storm could cause more than $7 billion in damages.