Decisions from General Assembly could benefit all

It's refreshing to see our state government, without being in crisis mode, do something right.

Last summer, the General Assembly created a legislative study committee to investigate changes to the Beach Plan -- the mechanism that provides property insurance, especially against wind damage caused by storms, to homes and businesses on the North Carolina coast. Created as an insurer "of last resort," the Beach Plan was morphing into something it was never intended to be, and should not be -- the coastal property insurer of choice.

And no wonder. For various reasons, as insurers were denied the rates they claimed they needed to compensate for the increased risk of coastal exposure, many private insurers simply stopped writing coastal policies. In the place of a properly-priced private market, the Beach Plan offered coverage at below-market rates. How could it do this? Easy -- with other people's money. In the event of any catastrophe beyond the so-called "50-year storm," the Beach Plan would simply pass onto property insurers anywhere in the state an "assessment" -- the obligation to make up the difference. If insurers didn't like this, well, they could leave the state.

Last summer, Farmers Insurance finally called the Beach Plan's bluff, decamping entirely from the North Carolina property insurance market, leaving 40,000 policyholders from all over the state in need of replacement policies. The departure of Farmers Insurance also raised the exposure of the state's remaining property insurers to the Beach Plan's fantasy financing. It doesn't take a genius to imagine what might happen if things didn't change. This January, in Florida, State Farm Insurance announced that, in light of a similar state-run financing scheme, it would be leaving the property market altogether in the Sunshine State, unwinding the insurance it provided to about 1.2 million policyholders.

Last fall, the North Carolina legislative study committee heard testimony, took evidence and suggested a better solution for North Carolina. Reintroduce a voluntary insurance market by reducing the Beach Plan's unsustainable, below-cost subsidy of coastal insurance. Before the committee even made its final proposal, the state Department of Insurance recognized this necessity by approving an increase in the premiums paid by those owning property at the coast, as well as approving a higher deductible (the amount of loss an insured absorbs before insurance proceeds kick in).

This made terrific sense. North Carolina had one of the lowest coastal deductibles of any southeastern state, dis-incentivizing our coastal property owners from taking cost-effective mitigation measures that could strengthen their homes and reduce the amount of wind losses caused by storms in the first place.

The study committee also recommended reducing the maximum amount of Beach Plan insurance to homes valued at $750,000 or less. Before, believe it or not, the Beach Plan was offering subsidized insurance to homes valued up to $1.5 million (many of which were second homes or rental properties, often owned by nonresidents).

Of course, all this reform didn't go unnoticed. Lawsuits by coastal interests were filed against the measures taken by the Department of Insurance. The department won one and lost another, currently on appeal. The prospects for reform of the Beach Plan looked uncertain.

It's at this point that state government began to show the refreshing signs of doing something right. Enter Rep. Hugh Holliman (D-Davidson County), the House Majority Leader and co-chair (with Sen. Tony Rand) of the coastal-insurance legislative study committee. Rep. Holliman introduced House Bill 1305, legislation that largely tracks the committee's recommendations.

The bill passed the House by a vote of 93-23 and now moves to the Senate. HB 1305 does not give reformers everything they should demand. But it's also far better than the status quo. It raises the Beach Plan's financial capacity to satisfy wind-damage losses by incorporating a variety of interconnected reforms: coastal rates are raised, a modest but crucial increased deductible is imposed, coverage is limited to residential properties valued at $750,000 or less, and, in the event of a true catastrophe slamming into the coast, it can obligate all of the state's ratepayers to surcharges that cannot exceed, in any one year, more than a 10 percent increase (approximately $65/yearly to the average $650 property tax premium).

HB 1305 is a pragmatic statewide covenant with the coast, without being a dangerous and unsustainable giveaway. Holliman deserves our admiration and this bill deserves our support.

■ Donald T. Hornstein is the Aubrey Brooks Professor of Law at UNC-Chapel Hill School of Law and a member of the legislative study committee on the Beach Plan. Daniel E. Peterson is a third-year law student at UNC-Chapel Hill School of Law.

The Journal welcomes original submissions for North Carolina Voices on local, regional and statewide topics. Essay length should not exceed 750 words. The writer should have some authority for writing about his or her subject.

Our e-mail address is: Letters@wsjournal.com. You may also mail a typed essay to: Letters to the Journal, P.O. Box 3159, Winston-Salem, NC 27102. Please include your name and address and a daytime telephone number.