Tuesday, February 17, 2009

North Carolina Wind / Hurricane Insurance Outer Banks, NC Insurance Coverages

Here's the breakdown:

o A 2% Per Occurrence Deductible (5% in Bald Head Island) for any wind damage went into effect under the Beach Plan and Fair Plan February 1, 2009. For renewals and continuations, the effective date is April 1, 2009. This is not a 1% to 2% increase! Beach/Fair plan deductibles were flat rate deductibles – ex. $1,000 on a $100,000 to $200,000 policy; $2,000 deductible over $200,000. Therefore, if you have a $400,000 policy – instead of paying $2,000 towards any wind damage – you will now have to pay $8,000 every time there is wind damage! The deductible is not tied to a hurricane – it is for ANY wind damage whether it is caused by a thunderstorm or nor'easter, etc. If a thunderstorm causes wind damage in Raleigh and that same storm hits the Coast – Raleigh residents might only have to pay $500 and for the same storm damage here – it's $10,000 on a $500,000 house. $500 vs. $10,000 for thunderstorm damage. And if another storm happens to cause wind damage in the same year – that's another $10,000 up front you'll have to pay. Are you now asking yourself – how fair is that? The official notice of the changes can be found at: http://www.ncjua-nciua.org/uw/mailings/web%20notice%20rate%20deductible.pdf.

o Beach Plan Surcharge Increases – A surcharge is a multiplier to the advisory homeowner's rates ordered by the Dept. of Insurance. The surcharge increases are as follows effective February 1, 2009: For Homeowner's (full peril) – the surcharge is being increased from 1.15 to 1.25. For example, if the ordered rate is $1.00 – then under the Beach Plan you pay $1.25 for insurance. For Homeowner's Wind policies the surcharge factor of 1.05 is being increased to 1.15 – for every $1.00 ordered rate – you pay $1.15 for wind coverage under the Beach Plan. The surcharge is meant to be a deterrent to people from buying coverage under the Beach Plan. The problem is that the surcharge is not a deterrent because the Beach Plan is the only option available to us, especially for wind coverage. People are not calling their insurance agents and asking for Beach Plan coverage - they are being told their only option is Beach Plan coverage!

o So, now here in the eighteen coastal counties, citizens with Beach Plan coverage have an enormous deductible increase and a 15% and 25% surcharge - whereas most citizens in the western part of the state actually get DISCOUNTED RATES for homeowner's coverage because it is a competitive market. We get surcharged - they get discounted.

o Now let's look at the rates statewide: Effective May 1, 2009 new rates go into effect. A chart and territory map can be found at http://www.ncdoi.com/Media/Documents/2009_HO_RateChangesWithMap.pdf. Please open these documents and print to follow along. The Rate Revision Chart shows the Counties/Cities in each territory; the territory number identified on the map; the rate percentage filed by the rate bureau (rate that was requested); the rate percentage ordered by the Insurance Commissioner; the dollar amount filed; and the last column shows the dollar amount ADVISORY RATE ordered by the Insurance Commissioner. First line show that the Currituck, Dare and Hyde beach areas, territory 7, is going to have a 6.5% increase - equivalent to about $2,122 for homeowner's insurance on a $150,000 frame home under an HO-3 policy, classes 1 - 6. On a $300,000 policy - that's $4,244 for general homeowner's insurance: fire and liability. Now add wind insurance AND if necessary - flood insurance. Go to line 7 - Gaston, Mecklenburg and Union Counties. Their rates are going down 6% - equivalent to about $499 per $150,000 of coverage. BUT REMEMBER - THEIR RATES ARE DISCOUNTED! So on a 300,000 policy, those is Gaston, Mecklenburg and Union Counties might only be paying $800 for general homeowner's insurance and they do not have to pay for additional wind coverage or flood insurance. AND they only have to pay a small deductible! $800 in Mecklenburg vs. $4,244 in the Dare beach area for the same HO-3 -general fire/liability policy. Add the wind/hail coverage and flood and you are probably looking at possibly $7,000 - $8,000 in insurance costs. I don't think anyone that lives on the coast has a problem with paying more for coverage because of being adjacent to the Atlantic Ocean, but are you now thinking even more - How is this fair?

o If you read the Raleigh News and Observer/Charlotte Observer over the latter part of 2008 - you would have seen in articles and letters to the editor the opinion that that the coastal counties are all wealthy citizens who are not paying their fair share. Those "beach" people are getting off easy paying "cheap" insurance rates under the Beach Plan. Well, we've already dispelled that myth above! And for those "wealthy beach" people - the Beach Plan covers the 18 coastal counties of Beaufort, Brunswick, Camden, Carteret, Chowan, Craven, Currituck, Dare, Hyde, Jones, New Hanover, Onslow, Pamlico, Pasquotank, Pender, Perquimans, Tyrrell, and Washington.

o The citizens west of I-95 have been led to believe that their insurance rates are going to go up because the Beach Plan does not have enough in reserves and surplus to cover losses in the event of a major hurricane - a 1 in 100 or 150 year storm. Insurance companies are assessed an amount for damages over and above what the Beach Plan has available to pay claims. This is done in "layers". Therefore, the insurance companies have to pay their share of the costs of which they say will be passed on to their policyholders statewide. The various insurance companies writing coverage in NC each have reinsurance coverage to assist in paying for assessments. When there is a loss, the loss is not recouped in just one year - it is spread out over a period of years. One insurance agent told me that in the past twenty years, there may have only been one assessment to the insurance companies.

o The Beach Plan was created in 1969 and interestingly enough - has yet to request an IRS ruling to determine if surplus funds - those over and above mandated reserves - are tax exempt. Typically, any funds seen as profit - the surplus - is viewed as taxable income to the IRS. The Beach Plan is an Association - not an "insurance company" - and so without ever determining the answer, the surplus has been distributed to the member companies. What?? So for years, with no major storms and assessment - monies have been distributed from the Beach Plan, thus perhaps creating the so-called problem that the Beach Plan does not have enough money in reserves or in reinsurance to cover the big one.

o The Beach Plan was originally intended to provide "essential property insurance" on the coastal barriers islands. It provided coverage for fire and extended coverage for wind, smoke, hail, aircraft, riot and civil commotion, and vehicle damage. In 1998, the Beach plan was expanded to the eighteen coastal counties for wind only coverage and that is when companies began excluding wind from their policies and dumping the wind exposure into the Beach Plan wind pool. The Beach Plan was expanded again in 2003 to provide homeowner's coverage in the eighteen coastal counties. Why homeowners coverage in the beach plan? Because most companies were not willing to write here even with the ability to exclude wind. Why weren't they willing to write here with wind excluded? The reason was and is the theory of concurrent causation. (example – you might have a fire at the same time you have a storm therefore the loss is paid as fire rather than windstorm.) Even in the recent past courts have made insurers pay flood claims as wind damage. The insurance companies are upset that the exposure has grown from about $17.3 billion in 2003 to about $74 billion in 2009. The risk of assessments from a major hurricane is real with this exposure and so few dollars in reserves, reinsurance (about $2.7 billion). Insurance companies are saying that there should be at least $6 - $6.5 billion in reserves for the Beach Plan to be solvent in the event that a major hurricane hits the coast. This amount is needed to reduce the risk of huge assessments to smaller companies, which could cause them to go out of business. There are fourteen members of the Beach Plan Board - 7 Insurance Company reps, 4 Insurance Agents and 3 public reps. Well, how did the Beach Plan exposure grow so large and who allowed this to happen?

o In response to Hurricane Katrina in 2005, the Beach Plan member companies agreed not to touch the surplus and allow the fund to grow. The Beach Plan board decided last year to increase the reserve fund from $750,000 to $1.1 Billion. Included in their report to the General Assembly, the Joint Select Study Committee on the Impact of Hurricanes on the Insurance Industry recommended amending Beach Plan legislation to not allow any distributions of the surplus to members companies and to only use surplus fund for claims, expenses and reinsurance. This one move will go a long way to address the Beach Plan solvency issue and member assessments!

o We pay more for coverage because of the threat of hurricanes. We have a huge deductible because of the threat of hurricanes. Statewide actual loss data, wind claims data has been requested but has yet to be provided by the Department of Insurance. On Tuesday, the newly formed organization NC 20 sponsored a Coastal Insurance Symposium in New Bern. Here's historical hurricane data that was provided: Out of the 15 most costly hurricanes (does not include flood damage) to hit the United States, eight of them impacted North Carolina. Out of the eight, six hit Central and Western North Carolina! Hurricanes are not just a coastal problem! A hurricane deductible should apply stat wide!

o Other info from NC 20 - We are always compared to Florida when discussing the threat of hurricanes. Florida has about 1225 miles of coastline where it only 138 miles wide and is densely populated along the coast. Over a 153 year period (1851 - 2004) 19 hurricanes category 3 or above hit Florida - three were category 5 and six were category 4. During the same 153 time period, 6 hurricanes category 3 or above hit NC - there were ZERO category 5 storms and only ONE category 6 storm.

o Dare County and other coastal towns/counties have legally challenged the surcharge increases and deductible changes to the Beach and Fair Plan approved by the former Insurance Commissioner Jim Long. Two bills - one in the House and one in the Senate have been introduced in the General Assembly regarding the homeowner's insurance rate changes and Beach Plan/Fair Plan changes. Work is continuing on these items. Due to the length of this report - You'll get an update on the progress in the legal/legislative arena next week with info on the Joint Select Study Committee Report.

o With the nationwide hot topic of discussion being economic stimulus and "how to help people avoid foreclosure", this is the worst time to implement any increases to the cost of owning a home! These rate increases and deductible changes will have an impact on the ability to reduce the inventory of approximately 2,600 homes on the market from Corolla to Hatteras - not including Currituck or Dare mainland. They will have an impact on financing, refinancing, selling a home and KEEPING A HOME! These changes will have a huge impact on our small businesses, especially since a 2% deductible is calculated on each policy item: 2% on each building, 2% on contents, etc.
WHAT YOU NEED TO DO:

The only way we can a make a difference is if we all get involved! Your legislative committee will do the "heavy lifting" but your support is necessary!

o Contact your insurance agent and ask how these changes are going to affect you.

o Contact Representative Tim Spear at 919-733-3029, tims@ncleg.net; Representative Bill Owens at 919-733-0010, Bill.Owens@ncleg.net; and Senator Marc Basnight at 919-733-6854, marcb@ncleg.net.

o If you are involved in property management, contact your owners and request that they contact their insurance agent. If owners live in other parts of NC, tell them they need to contact their local legislators and express their concerns.

o Email me the amount of coverage you have on your home-structure only and the total you are paying for coverage! THANKS to those that have emailed me a summary of their total coverage or scanned their policies and sent them. We need to show to legislators just what it costs for insurance on the coast!

o The current Insurance Commissioner Wayne Goodwin has the power to freeze the May 1 rate increase effective date and also stop the Beach Plan/Fair Plan changes. CALL THE INSURANCE COMMISSIONER'S OFFICE AT 919-733-3058 and express that these changes are not fair and are discriminatory to the coast. Share how much your coverage costs have changed over the past several years and how this extra cost will impact you! ASK THAT HE TAKE ACTION! Then request a written confirmation of the call!

o Email me at willokelly@gmail.com and let me know of your progress in these areas!

o Mark your calendars and attend the Coastal Insurance Forum, sponsored by the League of Women Voters, on Thursday, March 5th at 7:30 p.m. at the KDH Town Hall!

o We are working diligently with NC 20 on this issue; NC 20 is a coalition of public and private interests in the twenty coastal CAMA counties. For more information, check out www.nc-20.com. Review NC 20's position statement below:
NC 20 Position Statement
North Carolina Homeowners Insurance

NC 20 supports fair and accessible homeowner's insurance rates across the state.

NC 20 supports a stay of the effective date until May of 2011 on the changes made to the Beach Plan and Fair Plan approved by the Department of Insurance Commissioner on November 21, 2008.

NC 20 supports a stay on the effective date until May 2011 on the homeowners insurance rates ordered December 18, 2008 by the Department of Insurance Commissioner.

NC 20 encourages the legislature to appoint a study committee to comprehensively review the NC Insurance System which includes the Rate Bureau, Department of Insurance, NCJUA, and NCIUA.

NC 20 supports the creation of an Insurance Commission similar to the model of the Utilities Commission.

NC 20 supports transparency, accountability and verifiability of the North Carolina insurance system for a higher level of consumer protection.

NC 20 supports the use of actuarial data over modeling.

NC 20 supports statewide rate equity for HO-3 homeowner's policies.

NC 20 supports the current maximum coverage limit of $1.5 million under the Beach Plan.

NC 20 supports statewide wind deductibles triggered by named hurricanes and capped at 1% statewide.

NC 20 supports incentive programs and credits for wind damage mitigation

NC 20 does not support a cap on insurer assessments.
--
Willo Kelly
Government Affairs Director
Outer Banks Home Builders Association
Outer Banks Association of Realtors
willokelly@gmail.com
(252) 202-7927

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