Raleigh, N.C. — State lawmakers are aiming to lower property insurance rates by restructuring the state's plan to cover catastrophic loss.
A bill unveiled Tuesday in both the House and the Senate would create a public bonding authority within the state's Coastal Property Insurance Pool. It would also require insurers to divulge detailed information on their costs and revenues, require them to use state-specific modeling to forecast risk for wind and other liabilities and require the consent-to-rate process to be based on "sound actuarial principles."
Supporters of the bill, including state Insurance Commissioner Wayne Goodwin and the North Carolina Association of Realtors, say the changes will provide more transparency and more affordability for consumers.
Sen. Harry Brown, R-Onslow, says the rapidly rising cost of homeowners insurance is "the No. 1 issue that we hear from our constituents," especially for retirees and senior citizens on fixed incomes.
"We've seen rates triple in the past six, seven years," Brown said. "We have seniors with no insurance because they no longer can afford the insurance – for wind, in particular."
Association of Realtors President Tony Smith called the plan "long overdue."
"Over 30 years, there was a time when property insurance was not an issue to the transaction," Smith said. "Now, the cost of it can be a deal-killer."
Shoring up 'Beach Plan'
In 2009, state lawmakers approved a high-risk property insurance pool for coastal areas. Informally known as the Beach Plan, it's now called the Coastal Property Insurance Pool. As a cost of doing business in the state, property insurers must agree to contribute $1 billion to the pool in the event that a catastrophic storm depletes the pool's reserves.
However, should the cost of the storm exceed that initial $1 billion, insurers would then turn to re-insurance – basically, insurance policies on the insurance industry – to cover the balance of the losses.
As property values increase, so do potential losses for coastal insurers. That's part of the reason why re-insurance cost has become an increasingly large part of the price of an average property insurance policy.
Willo Kelly, government liaison for the Outer Banks Association of Realtors and the Outer Banks Association of Homebuilders and the founder of what she says is a grassroots coalition of reform backers called NC Fair, said 225,000 policy holders bought insurance last year – "mostly wind" – through the insurance pool. Out of $400 million in premiums paid in, $150 million went to cover the cost of insurers' re-insurance, she said.
"That’s money going out of the state, out of the country," Kelly said. "If we come up with a better way to manage catastrophic risk, we’re saving tens of millions of dollars. That money can go into [the pool's] surplus for catastrophic events."
That better way, according to Kelly, is the bonding authority included in the bill. Because it would be an available option for catastrophic risk, insurers would no longer be allowed to charge for their additional cost of assuming that risk themselves.
Kelly says other states with ballooning potential loss liabilities, such as California, have also turned to bonding authorities as a way to reduce the cost of insurance. So-called "cat bonds" – the name is short for catastrophe bonds – are used in California for earthquake coverage and in Louisiana for hurricane coverage.
The bonds are traded on global markets, but they haven't always worked out well in every case.
Notably absent from Tuesday's news conference were representatives of the state's property insurers. Asked whether the industry supports the plan, Sen. Bill Cook, R-Beaufort, chuckled.
"I haven't heard from them," Cook said. "I'm sure they've heard of it."
Nationwide spokeswoman Elizabeth Stelzer said the insurer is aware of the bill. "We are evaluating it and will offer our views about what is in the best interest of our policy holders. We invite dialogue on property insurance matters, a challenging line of insurance given our state's often catastrophic weather, and look forward to working with interested members of the legislature."