Insurers are seeking rate increases for homeowner’s insurance in North Carolina that range from a high of 30 percent in coastal counties to a low of 1.2 percent.
The hefty rate increase being sought along the coast fits a long-term pattern that has frustrated and outraged coastal communities that contend the rates homeowners pay already are unjustifiably high.
“It certainly comes as no surprise. We were expecting it,” said Willo Kelly, president of N.C. 20, a coalition of coastal counties. “We, however, feel these increases are not justified.”
The rate increase request – which must be approved by state regulators – comes as a few insurers have pulled back from the homeowner’s insurance market.
Two of the largest insurers in the state, N.C. Farm Bureau and Allstate, last year stopped writing homeowner’s policies in some instances unless customers also bought auto insurance policies from them. An N.C. Farm Bureau executive told a state legislative committee in December that its homeowner’s insurance business is unprofitable.
The average increase requested this week by the N.C. Rate Bureau, which represents insurance companies that write policies across the state, is 17.7 percent.
Rates are set by region, based on the number and type of claims and repair costs in the area. Rate increases sought by the Rate Bureau include 11.8 percent in Raleigh and Durham, and 11.1 percent in the rest of Wake and Durham counties, plus Orange and Chatham counties.
But, in this case, what you see is unlikely to be what you get.
The rate request first must pass muster with state regulators and, ultimately, the state insurance commissioner. The historical pattern says that won’t happen.
For example, the last time the Rate Bureau requested a rate increase for homeowner’s insurance, in 2008, it sought an average increase of 19.5 percent but agreed to accept a 4.05 percent increase after negotiating with regulators. That rate increase went into effect in May 2009.
Insurance Department spokeswoman Kerry Hall said state regulators “will thoroughly review the filing and determine if any rate change is warranted.”
If the industry and the Insurance Department staff can’t agree on a rate change, a hearing would be held that would be presided over by the insurance commissioner, who would then issue a ruling. The insurance commissioner’s decision can be appealed to the courts.
The current insurance commissioner, Wayne Goodwin, a Democrat, is seeking re-election. His Republican challenger is Mike Causey.
The increase sought by the Rate Bureau, which it wants to take effect June 1, would affect the maximum rates insurers can charge; many insurers offer discounts.
At the same time, policy premiums can rise in a year when no rate increase has been approved if an insurer reduces or eliminates discounts. In addition, policies that cover the “replacement cost” of a house may rise annually to keep pace with construction costs.
Ray Evans, director of the Rate Bureau, cited several factors to justify the rate increase request: an uptick in claims per 100 homes; expenses per claim that were 20.5 percent higher in 2009, the latest data included in the rate request, than they were in 2007; and higher expenses for insurance companies, most notably a big jump in the cost of reinsurance – which insurance companies buy to protect themselves from catastrophic losses.
Evans said the 30 percent increase sought in coastal counties is based on potential losses from a severe hurricane.
“Over the last 12 or 13 years, the rate on the coast has never been where we think it should be,” Evans said. “We are always 30 percent to 50 percent lower than what we think the real rate should be.”