State Insurance Commissioner Wayne Goodwin has backed off his ruling for a small reduction in insurance rates for residential properties that aren’t owner-occupied, in the face of a court battle initiated by the insurance industry.
On Tuesday, the state Insurance Department announced an out-of-court settlement that is a compromise between the 20.5 percent average increase on dwelling policies requested by insurers last year and the 2.6 percent reduction that Goodwin ruled was warranted.
The result: a 13.2 percent average increase for dwelling insurance, spread over three years.
“It became apparent that if we continued to fight this issue in court, there was too great a risk that dwelling policyholders would receive much larger increases, particularly on the coast,” Goodwin said in a statement. “This agreement allows for a smaller total increase spread over three years to lessen the impact on policyholders.”
Insurance Department spokeswoman Kerry Hall said the N.C. Rate Bureau, which represents the state’s insurers, was arguing before the state Court of Appeals that Goodwin’s decision had misapplied the process laid out in a 1979 court ruling. If the appellate court had found in the industry’s favor, then the entire increase sought by the insurers would have gone into effect.
Goodwin also noted that “in recent years, more and more insurance companies have been dropping or refusing to offer these policies. Genuine concerns about insurance availability were also a factor in arriving at this settlement.”
The rate settlement varies by territory, ranging from 25.9 percent over three years in some coastal areas to a 2.2 percent decrease in Caswell, Granville, Person, Vance and Warren counties. Likewise, the increase sought by the industry ranged from as low as 6.7 percent to as high as 25 percent in some coastal counties but would not have been spread over time.
The rates in Durham and Raleigh will rise an average of 2.8 percent over three years. The rates in the rest of Durham and Wake counties will rise an average of 1.2 percent. Rates in Orange and Chatham counties also will rise an average of 1.2 percent.
The Insurance Department calculated that policyholders would save $54.4 million over four years under the settlement compared to what they would pay if the industry had prevailed in court. The major reason the industry cited for its higher-rate request was an increase in projected losses stemming from hurricanes.
Dwelling policies are distinct from standard homeowners insurance policies. They’re limited to insuring physical damage from such causes as fire and wind and are sold for properties that aren’t occupied by the owner and have up to four residential units – such as rental and investment properties.
Not homeowners policies
About 395,000 properties statewide are covered by dwelling policies, versus 1.9 million North Carolina residences covered by homeowners policies.
The 13.2 percent hike likewise is an average that will vary by territory and will be spread out over three years. Rates will rise an average of 4.7 percent effect March 1, with subsequent average increases of 5.7 percent and 2.4 percent.
The new rates are a blend of two separate rates – for fire insurance and for “extended coverage,” which includes wind damage. Fire rates actually declined 7.3 percent.
Ray Evans, director of the Rate Bureau, said the industry still believes the higher rates it sought were justified but agreed on the settlement for several reasons.
Even if the insurers had prevailed in court, “which is not a given,” he said, the litigation would have likely dragged out another year or so – which means that higher rates wouldn’t have gone into effect until 2014.
In addition, a three-year deal “gives us a certain amount of stability and clarity,” Evans said.
Willo Kelly, president of N.C. 20, a coalition of 20 coastal counties that has stridently opposed higher rates along the coast on the grounds that the region already pays significantly higher rates than the rest of the state, said she was surprised and disappointed by the outcome. But she also recognized that it would have been worse if the court ruled in the industry’s favor.
“Nobody likes to pay higher rates,” she said. “I am pleased to see the increase will be phased in.”