Opinion
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Battle over Beach Plan
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Published: June 29, 2009
A colossal political battle is being waged in Raleigh over residential insurance for coastal property. Residents of Northwest North Carolina may think that this is not their concern, but they should think again.
The outcome could have a major impact on the availability of homeowners' insurance, and on rates and rate spikes in the event a major hurricane hits our coast.
The North Carolina Beach Plan is supposed to be an insurer of last resort. But over its 40 years of existence it has grown beyond its mission and insures about half of all residential property in an 18-county region -- $74 billion worth.
Insurance companies want change. They say that the Beach Plan, in which they are required to participate, is not actuarially sound. Under current law, they are liable for claims beyond the plan's current reserves and reinsurance. Their opponents, mostly local residents, politicians and the real-estate industry, say insurers are exaggerating.
Compromise is emerging in the legislature. If and when a bill becomes law, it must protect consumers across the state.
The first requirement involves more than legislation. Insurance rates along the coast must be actuarially sound. For years, this has not been the case. Coastal properties have been getting a cheap ride. Recent premium rate increases may correct that, but they are tied up in the courts.
Once the insurance commissioner is able to approve actuarially sound premiums along the coast, most property owners will be able to get their coverage in the private market. They won't need the Beach Plan, and that would solve a lot of the problem.
Next, the Beach Plan's maximum liability -- $1.5 million for the structure alone, excluding the very valuable land -- is too high. It should be half of that, or less. Working families in North Carolina should not be paying higher premiums to subsidize insurance for the owners of coastal palaces.
Insurers say they are ready to assign approximately $800 million in reserves to the Beach Plan. They should also be required to hold reinsurance for billions more. If the Beach Plan were to have reserves and reinsurance commitments in the area of, say, $3 billion, we should all be adequately protected.
In the event that a major catastrophe depletes even that level of assets, then the insurance companies should be able to come to the rest of us for compensating rate hikes. Not to provide the insurers that level of protection is irresponsible and will lead to insurers leaving the state or not offering to write new coverage.
But those rate hikes should be no more than 10 percent, the currently discussed target. And any such hikes should expire as soon as the insurers recover from any unexpected losses topping all of the Beach Plan's assets.
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