State regulators and homeowners insurance companies on Tuesday avoided what was likely to be a long, drawn-out battle by reaching a settlement that will allow overall statewide rates to increase an average 7 percent beginning July 1.
The deal, agreed to three months before a scheduled public hearing in Raleigh, was a testament to the fact that neither side was confident it would get what it wanted from a trial-like process that could have ultimately ended up in court.
It was better to settle at where we did than to take the risk that a hearing would have led to much different and costly results, said Insurance Commissioner Wayne Goodwin.
Under the settlement, rates will increase by as little as 1 percent in some areas of the state, and as much as 19.8 percent in some beachfront areas of coastal counties. The industry had requested an average rate increase of 17.7 percent back in October that ranged from a high of 30 percent in parts of coastal counties to a low of 1.2 percent.
The likelihood of getting any kind of increase probably would have been pushed back into 2014, said Ray Evans, director of the N.C. Rate Bureau, which represents insurance companies that write policies across the state. It was better to get a little now rather than wait a long time for some unknown amount.
Homeowner insurance rates are set by region, based on the number and type of claims and repair costs in the area. Rate increases are requested by the Rate Bureau but must be approved by state regulators.
This was the first rate increase sought by the Rate Bureau since 2008, when the industry wanted 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.
Under the settlement announced Tuesday, rates in Durham and Raleigh will increase 2.8 percent, well below the 11.8 percent requested by the industry. Rates in Charlotte will increase 8.4 percent, just below the 8.5 percent filed in the rate request.
Coastal counties up 19.8 percent
The largest rate increase 19.8 percent will be in the beach areas of Brunswick, Carteret, New Hanover, Onslow and Pender counties. The beach areas of Currituck, Dare and Hyde counties also will see an increase of 17 percent. The areas farther inland in those coastal counties will see much smaller increases.
Industry representatives said in October that the 30 percent increase sought for those areas was based on potential losses from a severe hurricane. Indeed, much of the debate over rates between the industry, the Insurance Department and homeowners centers on the issue of exposure to hurricanes and other catastrophic storms.
Homeowners in coastal communities have long contended the rates they pay are unjustifiably high. Willo Kelly, president of N.C. 20, a coalition of coastal counties, said she was disappointed but not surprised that the Insurance Department ended up settling before the hearing.
We still feel that the rates are unwarranted and unjustified based on our loss history; based on our building code standards; based on the deductibles that we have to pay, she said. But we do know we were facing a 30 percent increase.
Kelly said she hoped the hearing would take place so that there would be further scrutiny of the methodology and formulas used by the industry to set rates.
Thats what we really had hoped for, she said. That there would be further scrutiny of the homeowner filing.
Goodwin said he is in favor of hearings and maximizing transparency.
But you also have to weigh in the fact that if we had gone further there could have been a result not as favorable as this one, he said.
The new rates reflect the maximum rates insurers can charge; many insurers offer discounts.
Policy premiums also 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.
The difference between the Rate Bureaus request and the rates in the settlement amounts to $237 million in savings for policyholders, according to the state Insurance Department.
Last falls rate increase request came after several insurers pulled back from the homeowners insurance market in North Carolina.
In 2011, two of the largest insurers in the state, N.C. Farm Bureau and Allstate, stopped writing homeowners 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 2011 that its homeowners insurance business was unprofitable.
Goodwin said delaying a settlement would have left homeowners in limbo about what their rates would be, and increased the likelihood that more companies would decide to exit the market.
If there are fewer companies available to write homeowners insurance around the state, particularly in the eastern part, that means less competition and higher rates, he said.