State experts question insurance rate hike request

Rob Morris | February 21, 2011

Experts retained by the state Department of Insurance have raised numerous questions about a request to increase rates on dwelling policies, including how a hurricane model to predict losses was documented.

Commissioner Wayne Goodwin has called for a public hearing on the request in June, according to a statement from the insurance department.

“After initial review of the filing, department experts believe the requested rate increase is not justified based on the data submitted,” the statement said.

The North Carolina Rate Bureau, which represents state insurance companies, asked for an overall statewide average increase of 20.9 percent for dwelling properties, which are houses that are not primary residences.

Interest in the issue is high on the Outer Banks because the change would affect rental houses.

Questions, the statement said, centered on:

Old data. In the ratemaking process, data typically runs two years behind the date of the rate filing. The filing is based on data from 2007; however, 2008 and 2009 data was available at the time the filing was compiled.

Risk factors. The filing includes various risk factors used to calculate the indicated rate changes. The Rate Bureau claims these factors (such as the net cost of reinsurance and compensation for assessment risk) are a necessary cost of doing business in North Carolina. The concern is that the factors do not appear to be justified and result in an increase in rates.

Profit methodology. The Rate Bureau uses a methodology that is not allowed in North Carolina and has been successfully challenged in the 2001 auto insurance case, which was decided by the N.C. Supreme Court. This methodology results in excessive profit factors of 9.5 percent.

Deviations. The Rate Bureau includes a factor for deviations (discounts that some insurers give some of their policyholders) in the filing that, in effect, charges discounts back to consumers. The inclusion of a specific factor for deviations has been previously disallowed numerous times in auto filings litigated in the N.C. Supreme Court.

Hurricane model. The hurricane losses for extended coverage are derived using a hurricane model that does not appear to be adequately documented or justified.

Public hearings on the filing were held Jan. 4 to 31.

Goodwin cannot participate in the June hearing but will hear from the insurance department experts and from the rate bureau, the statement said.

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See what people are saying:

Maslin says:

Finally some good news!

on February 21, 2011 @ 4:36 pm

Willo says:

This is great news. We made several of the points during the insurance public comment meeting and in a subsequent meeting with NC DOI attorney Rose Williams. The previous dwelling rate filing from 4 years ago included 2003 data and we wondered why the 2003 data was included again in this rate filing – perhaps because that was the last year eastern NC suffered hurricane losses. Also in question was why the model used for NC was based on Florida, and at the request of the rate bureau, did not consider NC’s strong building code. The rate filing also used a standard $250 deductible to adjust possible losses therefore not taking into consideration the 1% named storm deductible and other higher deductibles we pay in eastern NC. When looking at premiums earned vs. actual losses, premiums earned in 2007 totaled almost $260 million statewide. Losses incurred averaged about $64 million a year; actual paid losses would be less so in all actuality insurance companies made up to $1 billion dollars in 5 years on dwelling losses vs. dwelling premiums to cover overhead, expenses, etc.
It was noted that there are about 395,000 dwelling policies in the state; about 19% of those policyholders were on the coast and even more policyholders in the mountains. A real concern for us on the Outer Banks was the proposed wind portion increases of the dwelling rate filing. They represented an approximate $1,000 annual increase in dwelling wind policy premiums on top of 10% surcharges which were added to those NCIUA policies in May 2010.
The Outer Banks Association of Realtors, the Outer Banks Home Builders Association, NC-20 and the NC Association of Realtors collaboratively joined forces to educate and inform members and the public about this issue.
Thanks to everyone who wrote letters and got involved. This public hearing coming up in June represents the first public hearing on property insurance in 18 years. The only other public hearing held on a rate filing was held in 1993 because it was the first year modeling was used to propose rates on the Coast. Thanks to NC Insurance Commissioner Goodwin for providing the opportunity for public comment and for scheduling the hearing. We will continue to be involved.
Willo Kelly
Government Affairs Director
Outer Banks Association of Realtors
Outer Banks Home Builders Association

on February 21, 2011 @ 10:02 pm

Lisa says:

Thanks to those in Dare County who are working hard on this issue. You know who you are.

on February 21, 2011 @ 10:27 pm

Joe says:

Very Interesting….considering that my carrier called me last year to tell me that my insurance was increasing to the tune of about $1k due to the fact that they “lost money” the year before….

“actual paid losses would be less so in all actuality insurance companies made up to $1 billion dollars in 5 years on dwelling losses vs. dwelling premiums to cover overhead, expenses, etc”

Time to get out the microscope and look closer. And the responsible parties need to be held accountable . . .

Greed is a dangerous thing and it is alive and well at the Outerbanks.

on February 22, 2011 @ 9:40 pm

John VanderMyde says:

Excellent news! I’m so glad we have good people working for the citizens of eastern NC…

I wonder how hard it would be for all of the Outer Banks to form a mutual insurance company… we’ve been paying too much for too long to the greedy insurance companies NCIUA monopoly.

on February 23, 2011 @ 7:57 am

vincent says:

I like John VanderMydes idea to form a mutual insurance company for all of oceanfront dewlings in N.C.

Have been a permanent resident on Emerald Isle for 35 years.We don’t rent our family home.
Had one claim after all the storms to cross this area.
Had a roof leak and replaced the roof shingles.

Have been paying for flood insurance all these years.
Seriously thinking of droping it.
Wind & Hail insurance is a ripoff.

on February 23, 2011 @ 4:31 pm

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