Beach Plan risks worry inland homeowners

Various proposals aim to fix 'ticking time bomb' that is the state insurance program.

Each year, coastal residents fear the path of a major hurricane, but the next big one could pummel North Carolina homeowners statewide. Financially, at least.

The Beach Plan, a coastal insurance program created by the state legislature, insures $72 billion in property but has only about $2.4 billion in cash and reinsurance to cover losses.

The plan has boomed along with the surge in beachfront development in recent years, but its expansion, attractive prices and unusual financing mechanism have left a mountain of risk on the coast that the rest of the state may have to start paying for.

That prospect has policyholders in the inland counties angry.

"If you want to have a home on the coast of North Carolina, you should bear the costs," said Wade Thomas, a retired apparel company executive in Concord.

Along the way, Insurance Commissioner Jim Long, a Democrat, has not voiced any alarm. In a letter to Senate Leader Marc Basnight last month, he disputed that the plan's finances constitute a crisis. But in a telephone interview last week he used that term.

Long's hand-picked successor, Democrat Wayne Goodwin, called the plan a "ticking time bomb."

What's clear is that the search is on for solutions.

"It is a very dangerous situation that has been allowed to exist and continue to exist," said Sen. Tony Rand, a Fayetteville Democrat who leads a special legislative committee tasked with proposing steps to fix the Beach Plan.

Many of the proposals so far point to higher rates. The suggestions include:

* Buying more reinsurance, which essentially is insurance for an insurance company. That requires money from a rate increase on Beach Plan customers or from the plan's savings.

* Raising the Beach Plan policy deductible (recently changed from dollar amounts to a percentage, so it's higher for expensive homes).

* Capping the value for which the plan will insure a house.

Last week, the N.C. Rate Bureau, the association of insurance companies that recommends rate increases, proposed another option: a statewide rate increase largely to pay for damages that the Beach Plan won't be able to cover after a major hurricane.

Bailout for the rich?

Some inland homeowners, such as Jules Coco of Cary, see that potential step as a bailout for rich people with homes in risky locations.

"You get society to enrich the already incredibly wealthy," said Coco, a computer programmer who fled New Orleans after Hurricane Katrina in 2005. "We've seen it happen on Wall Street, and now it's happening on the Outer Banks."

The Beach Plan, officially named the N.C. Insurance Underwriting Association, started as a safety net in 1969. It provided insurance along the Outer Banks when private companies wouldn't. Now it has morphed into the dominant policy provider along the ocean.

Nags Head insurance agent Linda Willey shops among insurance companies for the best deal for each client. The answer for most homeowners policies, she said, is the Beach Plan.

"The coverage is better," said Willey, whose husband is on the Beach Plan board. "The price is better."

Ten years ago, the legislature voted to expand the Beach Plan from only barrier islands to 18 coastal counties. In 2003, the legislature authorized the plan to offer full homeowner policies instead of more-limited policies against wind damage or for a house's structure but not its contents or owner's liability.

The enhancements approved by the legislature boosted business for the Beach Plan but also ballooned the amount and value of property the plan insured.