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February 17, 2009
Hatteras Island Real Estate: Homeowner’s insurance controversy
BY TOM HRANICKA  To paraphrase Professor Harold Hill’s famous lyrics in The Music Man – “Ya got trouble, my friend, right here, I say, right here on Hatteras Island…trouble with a capital I.” The “I” in this case stands for insurance. Significant changes in homeowner insurance rates, deductible amounts, and surcharges have been approved by the North Carolina Insurance Commissioner. If implemented as approved, the revisions will substantially increase the cost of homeowner’s insurance coverage provided by policies written through the Beach Plan. These modifications are being challenged at both the legislative level and in a lawsuit spearheaded by Dare County. As background, homeowner’s insurance is available from three primary sources: 1. The Voluntary Market. This is the source that everyone typically refers to when they insure a principal residence. It is insurance offered by private insurance companies to individuals and businesses. 2. The Beach Plan. The Beach Plan is the primary source of property insurance coverage on Hatteras Island and in 18 North Carolina coastal counties. Officially known as the North Carolina Insurance Underwriter’s Association, the Beach plan is a pool of private insurance companies that write insurance policies throughout the state. It is an association of insurance companies. It is not an insurance company itself. The Beach Plan was originally created in 1969 to provide wind insurance for properties located on the coastal barrier islands of North Carolina. Coverage was expanded in 1998, and again in 2003, to provide wind insurance, and later homeowner’s insurance, when private insurers stopped writing most individual policies in the state’s 18 coastal counties. The Beach Plan is the only coverage option available to most homeowners on the island. 3. The Excess & Surplus Market. At the risk of oversimplification, the excess market is where individuals and businesses go when they can’t get insurance coverage from any other source. A well known example of an excess market company would be Lloyd’s of London. There are three principal insurance increases that are being called into question: 1. The Beach Plan policy deductible for wind damage (the amount that the homeowner must pay out-of-pocket before insurance coverage kicks in) has been increased from a flat rate deductible to 2 percent of the home's value as stated in the policy with a minimum deductible of $1,000 on a per occurrence basis. If enacted, this would mean that a homeowner would have to pay 2 percent of the home’s value each time a claim was made before the insurance coverage would pay anything. Think about a situation where the island experienced a damaging nor’easter and a hurricane in the same year. A homeowner who sustained damage in both storms would have to pay two separate deductibles. This change was effective on Feb. 1. For policy renewals, the effective date is April 1. 2. The Beach Plan is allowed to charge higher rates than private insurance companies for the coverage that it provides. This additional cost is called a surcharge. Surcharges for full peril coverage (the majority of policies) will increase from a factor of 1.15 to 1.25 of the comparable voluntary market insurance rate. The surcharge for policies that provide only wind coverage will increase from 1.05 to 1.15. This change was effective on Feb. 1. 3. A rate increase of 6.5 percent was approved for homeowner’s insurance policies bought in the voluntary market in Dare County. This change is effective on May 1. The justification for these increases was to fund a shortfall in the Beach Plan’s ability to pay claims in the event of a catastrophic weather event. The Beach Plan reportedly has $3 billion to cover claims, and it is estimated to need $6 billion - $7 billion. The legislative and legal efforts to halt the increases are based on the negative financial impact that the increases will have on the citizens and the economies of coastal counties, procedural errors and omissions that were made during the approval process, and inequities in the cost of insurance between coastal counties and areas west of I-95. A hearing related to these challenges was held in Raleigh on Jan. 29. The hearing officer denied the petitioner’s request for a formal hearing on the increases. Efforts continue to obtain relief from the increases. If you would like to express your views and opinions concerning the cost of insurance increases, please contact your insurance agent and the following individuals: • Representative Tim Spear – 919-733-3029 or tim.spear@ncleg.net • Representative Bill Owens – 919-733-0010 or bill.owens@ncleg.net • Senator Marc Basnight – 919-733-6854 or marc.basnight@ncleg.net • Insurance Commissioner, Wayne Goodwin – 919-733-3058 • Governor Bev Purdue – 919-733-2120 (Fax) For more information on these issues and the actions that are being taken to reduce the adverse impact of the changes, you are encouraged to visit http://www.nc-20.com (Tom Hranicka is an associate broker with Outer Beaches Realty. Questions, comments, or suggestions for future articles may be sent to Tom Hranicka at P.O. Box 237, Avon, NC 27915, or e-mail to hranicka@hatterasisland.com ) Copyright©2009 Tom & Louise Hranicka. All rights reserved. |
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