Problems with homeowners insurance

To the editor: Anyone in North Carolina who either has or is contemplating purchasing homeowners insurance needs to be aware of what the state’s new insurance commissioner has called “a ticking time bomb.”

Recently elected insurance commissioner Wayne Goodwin takes office next month following his mentor, Jim Long, who served 24 years as insurance commissioner before deciding not to run for re-election.

The failing Beach Plan, a legacy Long dropped into the lap of his protégé, is a controversy likely to explode under the watch of the new commissioner. The “time bomb” is the threat of a catastrophic hurricane along the coastline that would generate insurance claims well beyond the capability of the Beach Plan to pay them.

The state’s government-run Beach Plan hasn’t been charging coastal homeowners enough in premiums, so any shortfall would be assessed to insurance companies, potentially putting some of them out of business.

One proposed solution is to begin charging higher rates to all those who have state homeowners’ insurance policies to cover potentially large future losses. This approach is patently unfair to inland homeowners since this issue is related only to homes on or near the coast.

If, however, the rate increases, just target the at-risk (coastal homes) causing the problem. It could result in individual coastal premium increases of 80-120 percent. While it is a steep increase for those residents, it is much fairer than passing the costs on to everyone who doesn’t live on the coast.

If nothing is done and a storm hits, state insurance companies could face assessments they must absorb, putting them at greater risk with little opportunity to make a profit.

The Beach Plan clearly has failed to raise coastal premiums appropriately, keeping rates low in the 18 coastal counties. Estimates place the plan with $2-2.5 billion in assets with more than $70 billion in insurance exposure in those 18 counties.

That makes the odds $1 in premium with a chance to lose $28. Not even the most addicted gambler would make that bet and insurance companies don’t like to gamble.

The Beach Plan, due to its governmental/political nature, doesn’t follow the rules and regulations required of private insurance companies to make sure they have the needed reserves in relation to the risk of the insurance sold.

Unfortunately, the philosophy is similar to the state’s reinsurance facility for automobile insurance, which penalizes good drivers by subsidizing insurance for bad drivers. If the facility runs out of money, the law mandates raises in everyone else’s auto insurance rates (think mostly good drivers) the next year to cover their losses.

Insurance companies are barred by law from telling their customers in the bill when these charges are passed on to them.

North Carolina must begin developing insurance policies with parity and transparency. People choose to live on the coast. People choose to build multi-million homes in high-risk locations because of proximity to the beach, despite the potential risk.

The end result is without some type of relief, insurance companies will refuse to write any homeowners insurance along the coast. Several have already said they will no longer write insurance for coastal property.

That isn’t a viable solution, any more than charging inland homeowners for the risk of insuring coastal homes.

AAA Carolinas believes those who choose to live in a higher risk area ought to pay the associated costs. You can choose to drive a Cadillac or a Honda, depending upon your assessment of costs and needs. The same is true of where you choose to live and the insurance costs you face.

We urge Goodwin to do what former Commissioner Long failed to do—address the issue with an eye on fairness and responsibility for every homeowner, not just those along the coast.