The N.C. Farm Bureau, one of the state's largest insurers, is planning a further pullback from the residential property insurance market. The Raleigh-based insurer also intends to boost the premiums on more than 380,000 homeowners policies across the state by an average of 6 percent.
Both moves, approved by the insurer's board of directors this month, stem from a steep increase in its reinsurance premiums in the wake of three storms last year that each triggered claims by policyholders in excess of $50 million. The company's premiums for reinsurance - insurance that it obtains to protect itself from catastrophic losses - jumped from $75 million last year to $130 million.
Steve Carroll, executive vice president and general manager, said the company is reluctantly taking these steps in order to remain financially strong.
The Farm Bureau previously adopted underwriting guidelines that linked homeowners policies with auto policies, which are much more lucrative, across the state. It's refusing to renew homeowners policies for policyholders who don't have a Farm Bureau auto policy and who also have filed a claim on their homeowners policies within the past five years.
That move, which took effect in January, triggered complaints from consumers who argue it's unfair. Allstate Insurance also has linked homeowners and auto policies.
Farm Bureau's latest decision to increase premiums on 382,000 homeowners policies across the state is slated to take effect July 1. Homeowners policy rates are capped by the state, but the Farm Bureau intends to boost the premiums consumers pay by eliminating or reducing discounts it now offers. For example, it will reduce or eliminate the discount it offers for newer homes.
The company plans to seek similar increases on premiums for mobile home and farm properties, which include farmhouses. The increases are subject to approval by the state Department of Insurance.
The Farm Bureau ranks third, with a 13.9 percent share, in the state's homeowners insurance market.
Other steps planned by the Farm Bureau are designed to reduce its exposure to risk, especially risk from hurricanes and other severe storms. Those plans include:
Beginning June 1, it will exclude wind damage coverage for 15,000 homeowners and dwelling policies as they come up for renewal. The company has been paring back its wind coverage in coastal counties for years; this latest step will eliminate its wind coverage along the coast. Wind coverage can be obtained from the state-created N.C. Beach Plan. It's not uncommon for insurers to exclude damage caused by wind from homeowners policies along the coast.
Eliminate 43,000 dwelling policies in non-coastal counties by not renewing them when they expire beginning June 1. That includes eliminating all dwelling policies in a region east of the Triangle. In the region that includes the Triangle and the western half of the state, it plans to eliminate dwelling policies for properties that are vacant or are occupied by tenants if the policyholder doesn't have a Farm Bureau auto insurance policy.
How policies differ
Dwelling policies are distinct from standard homeowners insurance policies. They're limited to insuring physical damage from causes such as fire and are sold for properties, such as rental and investment properties, that often aren't occupied by the owner and have up to four residential units.
The Rate Bureau intends to send notices to affected consumers 60 days before their policies expire.
The Farm Bureau also will stop offering new dwelling policies in non-coastal counties as of April 1. It will continue to sell new homeowners policies in conjunction with auto policies.
"Ultimately, these are business decisions that insurance companies are allowed to make," said state Insurance Department spokeswoman Kerry Hall. "North Carolina isn't alone in having to face these challenges."
A key factor in the Farm Bureau's decision to cut back on dwelling policies, said Carroll, is that the rates for all dwelling policies statewide are poised to decline an average of 2.6 percent beginning in May.
State orders rate cuts
Last year, insurers requested a 20.5 percent increase, but state Insurance Commissioner Wayne Goodwin denied that request and instead ruled that a reduction was warranted. The N.C. Rate Bureau, which represents the industry, is appealing that ruling.
The industry's rate requests on both homeowners and dwelling policies consistently have been undercut by the state Insurance Commissioner. Even so, the approved rates have been much higher along the coast because of the threat of hurricanes, provoking an outcry from real estate interests and government officials.
For example, in 2009 homeowners insurance premiums rose an average of about 4 percent - not the 19.5 percent requested by the industry. But homeowners along the coast were hit with an average increase of 18.7 percent, and as much as 29.8 percent in some areas.
Carroll said the Farm Bureau's 850 agents will help customers in non-coastal counties whose dwelling policies aren't renewed obtain essentially the same coverage at similar rates from the N.C. FAIR (Fair Access to Insurance Requirements) Plan. The state-created FAIR Plan doesn't offer dwelling policies in coastal counties.
Ray Evans, director of the Rate Bureau, said he wouldn't be surprised if other insurers follow in the Farm Bureau's footsteps.
"We have been hearing from agents that this is being contemplated by other companies," he said.