In response to the Citizen-Times viewpoint “WNC shouldn't have to pay for beach rescue” (July 14, 2009) we believe the Citizen-Times tells only part of the story. Here are some other facts for the citizens of WNC to consider.
The North Carolina Insurance Underwriting Association (NCIUA or Beach Plan) was established in 1969 to write essential property insurance for the barrier islands adjacent to the Atlantic Ocean. In 1998, the Beach Plan area was expanded by the NC General Assembly to provide coverage to all eligible property in the 18 coastal counties for Windstorm and Hail Insurance only. Then in 2003, the plan was authorized to begin offering Homeowners' Insurance policies for all 18 coastal counties.
95% of the 176,000 policies are coastal residences, totaling $74 billion. About two-thirds of these properties are NOT on a barrier island.
Actuaries say that a 1-in-100 year storm (like Hugo in 1989) could cause $4 billion in damages. In that scenario, the current Beach Plan would be allowed to pay only half-a-billion dollars out of cash reserves. Reinsurance (additional coverage purchased by the Beach Plan) then would pay policy limits of $1 billion.
That would leave $2.5 billion or 62.5% of the total loss to be assessed to all insurance carriers writing homeowners business in North Carolina. Insurers are assessed by state mandate in proportion to their respective property writings across the entire state. There are insufficient premiums collected for this, and the funds are not earmarked or held in reserve.
The average assessment under this scenario would be 124% of all homeowners premium written in the state. For some larger insurers, the assessment could exceed 240%. This is 240% of premium not profit. In addition, with $74 billion at risk, a Katrina-sized storm could wreak substantially greater havoc than these models suggest. Finally, insurance carriers would be responsible for paying claims on properties they wrote voluntarily, in addition to these far greater involuntary assessments.
The severe underfunding of the Beach Plan and risk of insurer assessments is already having a significant impact on the market. Five major insurance companies have stopped writing homeowners insurance in North Carolina, and many others are restricting their writings. Most insurers are now increasing their renewal rates for homeowners throughout the state (yes, even in the mountains). All insurers are watching the legislative action to address the Beach Plan problem, and will take action accordingly.
Legislation approved by the N.C. House Insurance Committee, Finance Committee, N.C. House and generally supported by the N.C. Insurance Commissioner (H.B. 1305) is the result of hard work by state representatives trying to solve this problem.
Here are the basic features of the proposed legislation:
So what is the bottom line to Homeowners in WNC? If no action is taken, more companies will withdraw and/or reduce their writing of Homeowners policies in N.C. This means your Homeowners premium will rise dramatically. The passing of HB 1305 will allow all citizens of our state to continue to have a competitive Homeowners market and allow our insurance companies to withstand a catastrophic hurricane loss.
We are in favor of HB 1305 and encourage WNC residents to contact their state legislators to vote for this legislation. Creating a dysfunctional homeowners market, like the mess in Florida, is not a desirable outcome for North Carolinians from Manteo to Murphy.