Next insurance chief to face underfunded Beach Plan

The insurance market on North Carolina's coast has fallen into crisis, and the rest of the state could end up paying the multibillion dollar bill.

The two major-party candidates for state insurance commissioner agree on that much. The only difference is the way they describe the situation. "Potential catastrophe," says Republican John Odom. Democrat Wayne Goodwin calls the beachside insurance market a "ticking time bomb."

The possibility of a hurricane wiping out the development that has mushroomed along the coast looms as the weightiest issue in the race to succeed longtime Insurance Commissioner Jim Long. The contest pits Goodwin, an assistant commissioner to Long who pledges to make changes from within, against Odom, a former Raleigh city councilman who argues the agency doesn't need more of the same.

Mark McMains of Fuquay-Varina, who owns an auto body shop and two towing companies, is running as a Libertarian.

A government-created insurance plan on the coast, the N.C. Insurance Underwriting Association, was intended as a safety net for property owners who couldn't afford private insurance. Instead it has become the dominant provider of insurance for beach houses and other property on the coast, because the association frequently offers the lowest prices.

The association, commonly called the Beach Plan, now covers about $72 billion in property. But it has only enough in cash reserves, assessments on private insurance companies and reinsurance coverage to pay for $2.4 billion in damage. Insurance analysts warn that a major hurricane would wipe out that money.

The Beach Plan would pay for any damage beyond the $2.4 billion by collecting from private insurance companies, who likely would pass those costs along to their policyholders in the rest of the state. Homeowners in Raleigh, Charlotte and elsewhere would pay for splintered beach houses.

"Our economy would be dramatically affected throughout the state," Goodwin said.

Odom says that without dramatic reform, private insurance companies will pull out of the state, as Farmers Insurance did in August.

"That'll make all insurance [rates] go up," Odom said.

The insurance commissioner appoints half of the board that runs the Beach Plan and approves the rates.

Both candidates propose joining the plan with government efforts in South Carolina and Georgia to pool coastal insurance for the three states.

Goodwin wants to examine Beach Plan rates, saying some customers pay too little while others pay too much. He also wants to consider changing the amount of damage a customer has to pay for before insurance kicks in.

He would push for tax incentives for storm-proofing buildings and for changing the state constitution to create a catastrophe fund that neither the legislature nor governor could dip into during tight budget years.

Odom proposes charging higher rates to out-of-state residents who own coastal property. He criticizes Goodwin for not acting sooner.

"He's been there for three years," Odom said, "and what's he done?"

Goodwin said the Beach Plan was not part of his responsibility at the department.

"It's only now that we've developed the political will in this state among legislators, among the business community and among the insurance community to make change," Goodwin said.

High-risk drivers

Both candidates want to reduce the size of the state's "reinsurance facility." This is a state-created nonprofit organization that provides coverage for higher-risk drivers. Private insurance companies are required by law to sell insurance to eligible customers. If the company decides the driver is too great a risk for the premium that the company is allowed to charge, it passes the driver and his or her liability on to the reinsurance facility, which now insures about 22 percent of North Carolina drivers.

Some drivers shuffled into this group avoid paying higher rates. They can expunge the penalty points on their license, for example, by attending driving school or pleading to a lesser charge.

"We have good drivers paying for bad ones," Odom said.

Both candidates also want the reinsurance facility to adjust rates for "clean risks." Those are drivers who haven't had tickets or accidents that were their fault for two years but are considered higher risks because of a variety of factors, such as age or type of vehicle.

Election 2008

INSURANCE COMMISSIONER