Most critical vote? Insurance commish

RALEIGH -- In North Carolina, two critical events could have enormous repercussions for insurance consumers. Unfortunately, most people are largely unaware of either one.

The first event is hurricane season, which began June 1.

The second event is the election of a new state insurance commissioner in November.

Allow me to explain how these events are related -- and why North Carolinians should care.

In 2004, Florida suffered its worst and most expensive hurricane season in history, with back-to-back hits from Charley, Ivan and Jeanne. The storms inflicted $34 billion worth of damage, obliterating the previous record of $26 billion set by Hurricane Andrew.

We're painfully aware of how too many residents in Louisiana are still struggling to get their lives back on track after suffering $81 billion in losses from Hurricane Katrina in 2005.

NORTH CAROLINA IS NO STRANGER TO HURRICANE DAMAGE, to be sure. We suffered $1.4 billion in losses from Floyd (1999), $1.3 billion from Fran (1996) and $645 million from Hugo (1989).

But it has been eight long years since we in North Carolina last took a real hit from a hurricane -- and even then, our experience pales in comparison to the mass destruction caused when hurricanes strike highly populated and developed areas at full throttle. The probability is that North Carolina will eventually suffer significant damage from a hurricane.

As president of the Independent Insurance Agents of North Carolina, I consider probabilities because that's essentially what insurance involves -- a hedge against the probability of loss. Insurance carriers sell policies assuming premiums collected exceed claims paid out. Consumers buy policies hoping they won't need them, but hoping, too, that carriers pay when losses occur.

In North Carolina, homeowners who live in 18 coastal counties are eligible to obtain insurance coverage through the state's Beach and Windstorm Plan, created by the General Assembly and supervised by the state insurance commissioner. All property and casualty insurance carriers conducting business in North Carolina help fund the plan and share its losses and profits.

I consider the plan to be insurance of last resort, because most homeowners can get broader coverage at a better price in the competitive marketplace. Indeed, the plan itself recommends that applicants first try to buy insurance in the marketplace before seeking its own coverage.

The plan is severely limited because regulations stipulate it cannot build up enough liquid monetary reserves to cover damages from a major catastrophe. Right now, the plan can cover about $2.5 billion in losses. However, experts estimate that the potential loss exposure of personal property along North Carolina's coast is more like $100 billion.

So one really bad storm, or a season of sequential storms, could easily deplete the plan's funds.

If that happens, the plan is allowed to tax insurance carriers to make up any shortfall.

In 2004, Florida's system worked in much the same way. When its plan ran out of money, Florida taxed insurance carriers to make up the shortfall.

As a result, insurance carriers fled in droves, preferring to abandon Florida altogether rather than pay a tax they said they couldn't afford in light of the avalanche of actual claims.

To this day, carriers have not returned to Florida en masse, which means there's little competition in the insurance industry there. And little competition means higher prices for all consumers.

WHICH BRINGS ME TO THE SECOND CRITICAL EVENT, the election of a new insurance commissioner in November.

As the state's chief insurance regulator, the new commissioner will have broad policymaking authority to address this problem. Surely, we have seen enough of Florida's experience to understand that a plan to tax insurance carriers to the hilt if our Beach and Windstorm Plan runs dry is really no plan at all.

If you own homeowner's insurance, you should care about the solvency of the N.C. Beach and Windstorm Plan because, if it runs out, it will directly affect your ability to purchase affordable coverage from the insurance carrier of your choice.

As you consider your vote for insurance commissioner in November -- Democrat Wayne Goodwin or Republican John Odom -- I strongly urge you to press each candidate for his plan to keep the N.C. Beach and Windstorm Plan solvent and to keep insurance coverage affordable and available for all citizens.

(R. Cleve Folger, a founding partner at TriSure, a Raleigh insurance agency, is president of the Independent Insurance Agents of North Carolina.)