Beach home owners could see insurance rate increase

By: JournalNow Staff | THE ASSOCIATED PRESS
Published: December 03, 2008

RALEIGH
Property owners in 18 coastal counties soon will pay more for insurance premiums through a state-sanctioned program in a decision that could help narrow any unfunded liabilities should a monster hurricane hit North Carolina.

Leaders of the so-called "Beach Plan" program unveiled the changes Tuesday to a legislative committee examining whether the insurance industry is prepared to pay for the next huge storm, which could cause billions of dollars in damages.

The changes, approved by the plan's board and signed off on by the Insurance Department in the last two weeks, attempt to return the Beach Plan to the coastal insurer of last resort and encourage more traditional insurance companies to draw up policies in the region.

But it also could make legislators less willing to make significant changes to the plan when they reconvene next year - something the insurance industry has urged committee members to do.

The insurance industry wants more certainty about how the plan would pay for a 100-year storm that could rack up more than $3 billion in insured losses, according to data.

"The plan needs to be funded sufficiently so that in the event of a storm the policyholders in the Beach Plan can have their claims paid in a timely fashion," said Joe Stewart, executive director of the Insurance Federation of North Carolina. "We know that we cannot anymore continue in the model that we have."

The Beach Plan was first created in 1969 to provide wind damage insurance to homeowners on North Carolina's barrier islands who couldn't obtain coverage on the open market. The program's coverage has expanded over the years to more counties and situations and now includes 170,000 coastal properties valued at $72 billion.

The Beach Plan currently charges premiums that are 5 percent or 15 percent above what regular insurers can offer, depending on the policy.

Under the changes taking effect around Feb. 1, the plan's policies will be 15 percent or 25 percent above what regular insurers can offer, according to Dewey Meshaw, the Beach Plan's general manager.
Meshaw said deductibles on Beach Plan policies also will increase from 1 percent of a home's value to 2 percent.

The changes could provide more revenues to the Beach Plan that Meshaw said will help provide more cash and buy more reinsurance - basically insurance for insurance companies - to cover losses. But it wasn't immediately clear how much it would generate.

Bob Herlong, a regional manager for the Property Casualty Insurers Association of America, said his group supports the Beach Plan's changes as "a positive step in the right direction."

"We look forward to working with the study committee to address some of the more fundamental problems with the system," Herlong said.

The plan has said it's prepared to meet $2.4 billion in claims, but that would include charging hundreds of millions of dollars in assessments to insurance companies, which often get passed along to policyholders outside of the 18-county area.

More assessments would be necessary for larger storms, which worries the industry because there is no limit on them and could threaten their fiscal health. And recent history shows costs could worsen.
Hurricane Floyd in 1999 caused more than $6 billion in insured and uninsured damages throughout eastern North Carolina.

Association analyst Lynn Knauf urged lawmakers to cap how much additional money insurers and policyholders would have to pay annually should the Beach Plan run out of money after a storm.

Knauf told the panel there needs to be larger cushion so that the Beach Plan could pay for storm damage that statistically should occur every 150 years. Meshaw said planning for the 100-year storm is sufficent.

The insurance industry also told the committee Tuesday it would ask the Insurance Department to allow it to raise homeowner premium rates across the state by 19 percent on average. But Ray Evans, the general manager of an industry group that seeks rate changes, said the proposal probably will be lowered to take the Beach Plan's changes into account.