A guest column from Jennifer Cohen, executive director of IFNC, on the importance of passing the Beach Plan.
Jennifer Cohen: Why we must fix the beach plan for insurance now
Guest columnist
The Herald-Sun
Jul 28, 2009
North Carolina's been lucky lately -- we haven't been hit by a major hurricane this decade. That luck won't last forever.
House Bill 1305 offers a chance for legislators to act before a crisis to address the problems with coastal property insurance in our state.
All of us -- even inland residents -- have a stake, because what happens at the coast can affect the rates and availability of property insurance across the entire state.
The "Beach Plan" provides wind and homeowners' insurance in 18 coastal counties. It was established in 1968 as an insurer of last resort, however, it now covers half the homes in those counties, and its reserves are woefully inadequate to pay claims from a major storm.
Here is why all North Carolinians should care about the Beach Plan: All companies that offer property insurance in North Carolina must be part of it. Should the plan ever run out of money to pay claims -- as it undoubtedly would after a major hurricane -- it would tap the insurance companies for the money it needs to pay those claims.
Right now, the amount of money insurers must contribute to the plan to pay claims is unlimited. North Carolina is the only state that doesn't cap how much insurers must pay out of pocket for a major storm. These assessments are based on each insurer's statewide market share. So the easiest way for a company to limit its exposure to these payments is to leave or reduce its presence here. That costs us all, because it means there are fewer companies to compete for our business and potentially higher rates for all of us.
Some companies have already stopped writing homeowner's insurance in the state. Farmers Insurance left North Carolina last year, forcing 40,000 homeowners to find a new insurer. Encompass Insurance, a division of Allstate that insures 5,600 properties in North Carolina, said in December that it won't write new homeowner policies. Nationwide announced recently that it will not issue new mobile-home policies here.
All three blamed the Beach Plan.
House Bill 1305 helps the citizens of North Carolina by limiting the assessments against insurers in the event of a major storm.
Yes, the bill would allow costs from a major storm to be recovered through a surcharge to policyholders across the state. But that surcharge would be levied only in the event of a truly catastrophic event -- one that caused billions of dollars of damage.
For example, if Hurricane Hazel -- the worst storm in North Carolina history -- hit today, it would cost the Beach Plan $1.4 billion. With the money it has on hand, reinsurance and insurer contributions that would be imposed by HB 1305, the Beach Plan would be able to pay $2.4 billion in claims before any citizen sees a surcharge. And each year we don't have a major storm, the Beach Plan builds reserves and that $2.4 billion increases, further reducing the chance that any surcharge would be imposed.
We need HB 1305 to put this plan into action.
We can't put our heads in the sand about the risks posed both by Mother Nature and by the precarious state of the Beach Plan. We hope legislators will approve House Bill 1305 to help ensure a competitive insurance market in North Carolina. If more companies leave North Carolina because of the risks of the Beach Plan, it hurts us all.
Jennifer Cohen is the executive director of the Insurance Federation of North Carolina, an association of the largest property and casualty insurers that do business in the state.