When hundreds of real estate agents from across the state descend on Jones Street in Raleigh on Wednesday as part of their association's annual Legislative Day, their top priority will be talking up several bills that would reform regulation of homeowners insurance rates.
“We’ve never seen so many bills introduced in a session ... dealing with homeowners insurance,” said Cady Thomas, chief lobbyist for the N.C. Association of Realtors. “Everybody is feeling the pinch now and it really is time to do something about it in North Carolina.”
Realtors, said Thomas, are concerned that high homeowners insurance premiums are depressing demand for homes along the beach and causing some homeowners to default on their mortgages.
At least five bills focused on homeowners insurance, mostly with a pro-consumer slant, have been introduced in the state House and Senate. So far, however, all but one of the bills are still in committee; to remain alive, the others must be passed by at least one chamber by the April 30 crossover deadline.
The legislature is facing a balancing act. Although many lawmakers want to come to the aid of homeowners who are steamed about their rates, they also know that an insurance company can always choose to stop writing homeowners policies in North Carolina if it concludes that the rates it’s permitted to charge are inadequate.
“That is the counterbalance,” said Sen. Michael Lee, a Wilmington Republican who has sponsored two homeowners insurance bills. “We need to make sure we have solid insurance companies on good financial footing that are insuring these risks.”
By far the most ambitious proposals are a pair of companion bills, Senate Bill 208 and House Bill 182. Those bills have been endorsed by Insurance Commissioner Wayne Goodwin and the North Carolina Homeowners Alliance, as well as the Realtors’ association.
Among many other things, those bills would: expand the state insurance commissioner’s ability to decrease homeowners insurance rates; require insurers to provide more detailed information about premiums and losses by geographic territory; and calls for creation of a legislative study committee to take a look at the way the state regulates homeowners insurance – a system that is unique in the nation – with an eye towards possible reform.
The bill also would impose restrictions on consent-to-rate, which has become a hot-button issue among homeowners. Consent-to-rate is a perfectly legal way for insurers to charge rates higher than the state-approved maximum by obtaining a policyholder’s approval in writing.
The companion bills are so far-reaching that they address the issues addressed in the other, narrower homeowners insurance bills. But the approach isn’t always the same.
Rep. Chris Millis, a Hampstead Republican who is a primary sponsor of the House bill, said he is hearing plenty of hue and cry from constituents complaining about the price tag.
“This is an issue that has become a need on a statewide level,” Millis said in an email.
Both homeowners and insurers are upset and frustrated by homeowners insurance rates. However, their views are diametrically opposed.
The insurance industry contends that their rates, which have to be approved by the state insurance commissioner, aren’t nearly high enough – that they’re not commensurate with the risks posed by hurricanes and other catastrophes that they insure against.
The notion that North Carolina homeowners pay unreasonably high rates is a myth, said John McMillan, a lobbyist for Allstate and two industry groups, the Insurance Federation of North Carolina and the American Insurance Association. He cited data compiled by the Insurance Information Institute that reports that the rates paid by North Carolina homeowners along the coast are much lower than the rates coastal homeowners pay in Alabama, Florida, Louisiana, Mississippi, South Carolina and Texas.
“We have had a demonstrated need for (rate) increases and we have had, in effect, a decrease in many of the territories that most needed the increase,” he said.
McMillan was referring to last year, when the insurance commissioner rejected the industry’s request for an average increase of 25.6 percent on homeowners rates across the state and as high as 35 percent in some beach areas.
Instead, the commissioner increased rates for renters and condominiums, which enabled him to order a commensurate decrease in homeowners insurance rates. That amounted to an average decrease of three-tenths of a percent in homeowners rates, with the decrease in coastal areas was as high as 18 percent.
The N.C. Rate Bureau, which files for rate requests on behalf of insurance companies, has appealed.
The commissioner’s action “makes it more difficult for insurers to conduct business in North Carolina without being able to to charge what they feel is appropriate for the risk that is presented there,” Chris Hackett of the Property Casualty Insurers Association of America said.
Historically, the industry has obtained only a portion of the rate hike it sought. In 2012, for example, it sought an average increase of 17.7 percent but in the end obtained an average increase that was less than half that amount – 7 percent. That increase went into effect in July 2013.
Homeowners and the real estate community in coastal counties have been complaining about the pain of homeowners premiums for years. But Tyler Newman of the Wilmington-based Business Alliance for a Sound Economy, which represents homebuilders and developers, said that 2013 increase boosted the clamor for change among homeowners – and therefore among legislators – because it spread higher premiums to the “interior parts of the state.”
In addition, Newman said, an increasing number of homeowners across North Carolina are being charged higher than the maximum approved homeowners rates under the consent to rate process. This allows insurers to skirt the state’s rate-making process and charge higher rates as long as the homeowner signs a “consent to rate” form agreeing to the higher price.
Last year 40 percent of homeowners policies statewide charged higher than the maximum rates thanks to consent to rate, up from 23 percent in 2010.
“Other people in the state are finally getting pinched,” Newman said.
Thomas, the lobbyist for the Realtors’ association, said her organization isn’t trying to “villainize” the insurance companies.
“We know they have a business they need to run,” she said. “We know we need insurance companies to be here to protect the citizens.”
But given the proliferation of homeowners insurance bills in the legislature, she said, “I think the General Assembly is now saying, it’s time. It’s time for everybody to come to the table.”
Homeowners insurance bills
Senate Bill 208 and House Bill 182
These far-ranging companion bills, among other things, would:
▪ Expand the state insurance commissioner’s ability to decrease homeowners insurance rates
▪ Require insurers to provide more detailed information about premiums and losses by geographic territory.
▪ Requires that, if the industry decides to submit a computer model of potential losses from catastrophes such as hurricanes to justify rate requests that it submit more than one model.
▪ Requires that insurance companies that previously have obtained a homeowners’ approval to charge higher than the state-approved maximum rates must do so again if it wants to raise rates still more. Under current law, once a homeowner signs a consent to rate form an insurer can raise rates in subsequent years without obtaining the consumer’s approval.
▪ Create a legislative study committee to take a look at the way the state regulates homeowners insurance – which is unique in the nation – with an eye towards possible reform.
▪ Create a N.C. Recovery Finance Authority that could issue tax-exempt bonds to pay for losses incurred by the N.C. Insurance Underwriting Association, formerly known as the Beach Plan, that provides insurance against wind and hail damage in 18 coastal counties.
The bill requires the N.C. Rate Bureau, which represents insurers on rate issues, to use at least two computer models to calculate potential losses from catastrophes if computer models are used at all in rate requests. Critics along the coast have complained about the models used by the industry.
The bill has moved to the Senate after being passed, 115-0, by the House.
The bill would prohibit homeowners insurance companies from using consent-to-rate to charge more than the state-approved maximum rates.
Would create a joint legislative study committee that would examine how the state regulates homeowners insurance rates – and auto insurance rates as well. The bill points out that an entity akin to the N.C. Rate Bureau, which makes a single rate request on behalf of the state’s insurers, “no longer exists in any other state.”
Staff writer David Ranii