Outer Banks Coastal Insurance Costs Are Going Up!

In this time of grave concern about the costs of owning a home, be it your Primary Residence, your Second Home or a Vacation Rental Investment Home, the last thing any of us need to deal with is an increase in an expense of home ownership. Well, here on the Outer Banks and all Coastal Counties in North Carolina, we are facing a pretty significant increase in the cost of insuring our homes.

Foreclosures are many, short sales are happening routinely and most are suffering from a lack of work to total loss of much they have enjoyed, grown to love and care for and upsetting families and lives. Why do we, in the times we are facing in this Country, have so much adversity... and who is trying to help us. Here on the Outer Banks, the Economic Stimulus Plan a few think will help, shares no help here (in my opinion). 

Here in Dare and Currituck Counties, the Outer Banks REALTORs and Outer Banks Home Builders are fighting for our rights to a fair assessment and application of actual facts as it relates to the Insurance situation we are facing! These two groups share a Governmental Affairs Director who has endless hours in her research and informational help; almost bordering on a Lobbyist type of work. She has helped our County and local business people pursue an alliance with most all Coastal Counties in North Carolina. Although the alliance is still doing some ground work, that alliance will be a long term benefit to our people.

As part of our work as REALTORs, we have a duty and obligation to help keep the public informed by researching and providing accurate information and put it out there for all to know. To that end, our Government Affairs Director provided a History and fact finding piece that I am including below with the Blessing of the Board of Directors of the REALTOR Association. It is very important information.

You should read and ACT! Everyone is going to feel the pinch and additional cost; even the tenants will feel the affects. This piece is LONG but well presented and I am providing it to you in total without any changes; as required. As the Legislative Chair for the Outer Banks Association of REALTORs, I welcome and encourage comment and questions from those who read... BUT READ IT!

Thanks for taking the time to Read!

Here you go:

The information below was included in last week's Outer Banks Association of REALTORS^®' Legislative Briefing. The Briefing is published by the Outer Banks Association of REALTORS^® as a benefit of membership. We are encouraging you to forward this Approved release of a portion of the 'Legislative Briefing' as information for your clients, homeowners, and anyone else who is willing to help by publishing this information in other venues in order to reach as many people as possible!  We NEED homeowners to contact their representatives to help MAKE A DIFFERENCE!

Please ensure if you are forwarding this information, to provide credit to the owners of this information, being the Outer Banks Association of REALTORS® and the Outer Banks Home Builder’s Association!

 INSURANCE - IT'S WORSE THAN YOU THINK!
PLEASE READ AND TAKE ACTION!!

Coastal Insurance – What You Need to Know… and What You Need to DO!
Send comments to willokelly@gmail.com, Government Affairs Director
Outer Banks Association of REALTORS^®      Outer Banks Home Builders Association

 Here's the breakdown:

o         A 2% Per Occurrence Deductible (5% in Bald Head Island) for any wind damage went into effect under the Beach Plan and Fair Plan February 1, 2009. For renewals and continuations, the effective date is April 1, 2009. This is not a 1% to 2% increase! Beach/Fair plan deductibles were flat rate deductibles – ex. $1,000 on a $100,000 to $200,000 policy; $2,000 deductible over $200,000. Therefore, if you have a $400,000 policy – instead of paying $2,000 towards any wind damage – you will now have to pay $8,000 every time there is wind damage! The deductible is not tied to a hurricane – it is for ANY wind damage whether it is caused by a thunderstorm or nor'easter, etc. If a thunderstorm causes wind damage in Raleigh and that same storm hits the Coast – Raleigh residents might only have to pay $500 and for the same storm damage here – it's $10,000 on a $500,000 house. $500 vs. $10,000 for thunderstorm damage. And if another storm happens to cause wind damage in the same year – that's another $10,000 up front you'll have to pay. Are you now asking yourself – how fair is that? The official notice of the changes can be found at: http://www.ncjua-nciua.org/uw/mailings/web%20notice%20rate%20deductible.pdf. 

• Beach Plan Surcharge Increases – A surcharge is a multiplier to the advisory homeowner's rates ordered by the Dept. of Insurance. The surcharge increases are as follows effective February 1, 2009: For Homeowner's (full peril) – the surcharge is being increased from 1.15 to 1.25. For example, if the ordered rate is $1.00 – then under the Beach Plan you pay $1.25 for insurance. For Homeowner's Wind policies the surcharge factor of 1.05 is being increased to 1.15 – for every $1.00 ordered rate – you pay $1.15 for wind coverage under the Beach Plan.  The surcharge is meant to be a deterrent to people from buying coverage under the Beach Plan. The problem is that the surcharge is not a deterrent because the Beach Plan is the only option available to us, especially for wind coverage.  People are not calling their insurance agents and asking for Beach Plan coverage - they are being told their only option is Beach Plan coverage!

• So, now here in the eighteen coastal counties, citizens with Beach Plan coverage have an enormous deductible increase and a 15% and 25% surcharge - whereas most citizens in the western part of the state actually get DISCOUNTED RATES for homeowner's coverage because it is a competitive market. We get surcharged - they get discounted.

• Now let's look at the rates statewide: Effective May 1, 2009 new rates go into effect. A chart and territory map can be found at http://www.ncdoi.com/Media/Documents/2009_HO_RateChangesWithMap.pdf.  Please open these documents and print to follow along. The Rate Revision Chart shows the Counties/Cities in each territory; the territory number identified on the map; the rate percentage filed by the rate bureau (rate that was requested); the rate percentage ordered by the Insurance Commissioner; the dollar amount filed; and the last column shows the dollar amount ADVISORY RATE ordered by the Insurance Commissioner. First line show that the Currituck, Dare and Hyde beach areas, territory 7, is going to have a 6.5% increase - equivalent to about $2,122 for homeowner's insurance on a $150,000 frame home under an HO-3 policy, classes 1 - 6. On a $300,000 policy - that's $4,244 for general homeowner's insurance: fire and liability. Now add wind insurance AND if necessary - flood insurance. Go to line 7 - Gaston, Mecklenburg and Union Counties. Their rates are going down 6% - equivalent to about $499 per $150,000 of coverage. BUT REMEMBER - THEIR RATES ARE DISCOUNTED! So on a 300,000 policy, those is Gaston, Mecklenburg and Union Counties might only be paying $800 for general homeowner's insurance and they do not have to pay for additional wind coverage or flood insurance. AND they only have to pay a small deductible! $800 in Mecklenburgvs. $4,244 in the Dare beach area for the same HO-3 -general fire/liability policy. Add the wind/hail coverage and flood and you are probably looking at possibly $7,000 - $8,000 in insurance costs. I don't think anyone that lives on the coast has a problem with paying more for coverage because of being adjacent to the Atlantic Ocean, but are you now thinking even more - How is this fair?

• If you read the Raleigh News and Observer/Charlotte Observer over the latter part of 2008 - you would have seen in articles and letters to the editor the opinion that that the coastal counties are all wealthy citizens who are not paying their fair share. Those "beach" people are getting off easy paying "cheap" insurance rates under the Beach Plan. Well, we've already dispelled that myth above! And for those "wealthy beach" people - the Beach Plan covers the 18 coastal counties of Beaufort, Brunswick, Camden, Carteret, Chowan, Craven, Currituck, Dare, Hyde, Jones, New Hanover, Onslow, Pamlico, Pasquotank, Pender, Perquimans, Tyrrell, and Washington.

• The citizens west of I-95 have been led to believe that their insurance rates are going to go up because the Beach Plan does not have enough in reserves and surplus to cover losses in the event of a major hurricane - a 1 in 100 or 150 year storm. Insurance companies are assessed an amount for damages over and above what the Beach Plan has available to pay claims. This is done in "layers". Therefore, the insurance companies have to pay their share of the costs of which they say will be passed on to their policyholders statewide. The various insurance companies writing coverage in NC each have reinsurance coverage to assist in paying for assessments. When there is a loss, the loss is not recouped in just one year - it is spread out over a period of years. One insurance agent told me that in the past twenty years, there may have only been one assessment to the insurance companies.

• The Beach Plan was created in 1969 and interestingly enough - has yet to request an IRS ruling to determine if surplus funds - those over and above mandated reserves - are tax exempt. Typically, any funds seen as profit - the surplus - is viewed as taxable income to the IRS. The Beach Plan is an Association - not an "insurance company" - and so without ever determining the answer, the surplus has been distributed to the member companies. What?? So for years, with no major storms and assessment - monies have been distributed from the Beach Plan, thus perhaps creating the so-called problem that the Beach Plan does not have enough money in reserves or in reinsurance to cover the big one.

• The Beach Plan was originally intended to provide "essential property insurance" on the coastal barriers islands. It provided coverage for fire and extended coverage for wind, smoke, hail, aircraft, riot and civil commotion, and vehicle damage.  In 1998, the Beach plan was expanded to the eighteen coastal counties for wind only coverage and that is when companies began excluding wind from their policies and dumping the wind exposure into the Beach Plan wind pool. The Beach Plan was expanded again in 2003 to provide homeowner's coverage in the eighteen coastal counties. Why homeowners coverage in the beach plan? Because most companies were not willing to write here even with the ability to exclude wind. Why weren't they willing to write here with wind excluded? The reason was and is the theory of concurrent causation. (example – you might have a fire at the same time you have a storm therefore the loss is paid as fire rather than windstorm.)  Even in the recent past courts have made insurers pay flood claims as wind damage. The insurance companies are upset that the exposure has grown from about $17.3 billion in 2003 to about $74 billion in 2009. The risk of assessments from a major hurricane is real with this exposure and so few dollars in reserves, reinsurance (about $2.7 billion). Insurance companies are saying that there should be at least $6 - $6.5 billion in reserves for the Beach Plan to be solvent in the event that a major hurricane hits the coast. This amount is needed to reduce the risk of huge assessments to smaller companies, which could cause them to go out of business. There are fourteen members of the Beach Plan Board - 7 Insurance Company reps, 4 Insurance Agents and 3 public reps. Well, how did the Beach Plan exposure grow so large and who allowed this to happen?

• In response to Hurricane Katrina in 2005, the Beach Plan member companies agreed not to touch the surplus and allow the fund to grow. The Beach Plan board decided last year to increase the reserve fund from $750,000 to $1.1 Billion. Included in their report to the General Assembly, the Joint Select Study Committee on the Impact of Hurricanes on the Insurance Industry recommended amending Beach Plan legislation to not allow any distributions of the surplus to members companies and to only use surplus fund for claims, expenses and reinsurance. This one move will go a long way to address the Beach Plan solvency issue and member assessments!

• We pay more for coverage because of the threat of hurricanes. We have a huge deductible because of the threat of hurricanes. Statewide actual loss data, wind claims data has been requested but has yet to be provided by the Department of Insurance. On Tuesday, the newly formed organization NC 20 sponsored a Coastal Insurance Symposium in New Bern. Here's historical hurricane data that was provided: Out of the 15 most costly hurricanes (does not include flood damage) to hit the United States, eight of them impacted North Carolina. Out of the eight, six hit Central and Western North Carolina! Hurricanes are not just a coastal problem! A hurricane deductible should apply stat wide!

• Other info from NC 20 - We are always compared to Floridawhen discussing the threat of hurricanes. Floridahas about 1225 miles of coastline where it only 138 miles wide and is densely populated along the coast.  Over a 153 year period (1851 - 2004) 19 hurricanes category 3 or above hit Florida- three were category 5 and six were category 4. During the same 153 time period, 6 hurricanes category 3 or above hit NC - there were ZERO category 5 storms and only ONE category 6 storm.

• Dare County and other coastal towns/counties have legally challenged the surcharge increases and deductible changes to the Beach and Fair Plan approved by the former Insurance Commissioner Jim Long. Two bills - one in the House and one in the Senate have been introduced in the General Assembly regarding the homeowner's insurance rate changes and Beach Plan/Fair Plan changes. Work is continuing on these items. Due to the length of this report - You'll get an update on the progress in the legal/legislative arena next week with info on the Joint Select Study Committee Report.

• With the nationwide hot topic of discussion being economic stimulus and "how to help people avoid foreclosure", this is the worst time to implement any increases to the cost of owning a home! These rate increases and deductible changes will have an impact on the ability to reduce the inventory of approximately 2,600 homes on the market from Corolla to Hatteras - not including Currituck or Dare mainland. They will have an impact on financing, refinancing, selling a home and KEEPING A HOME! These changes will have a huge impact on our small businesses, especially since a 2% deductible is calculated on each policy item: 2% on each building, 2% on contents, etc.

 WHAT YOU NEED TO DO:

The only way we can a make a difference is if we all get involved! Your legislative committee will do the "heavy lifting" but your support is necessary!

o     Contact your insurance agent and ask how these changes are going to affect you.

o     Contact Representative Tim Spear at 919-733-3029, tims@ncleg.net;  Representative Bill Owens at 919-733-0010, Bill.Owens@ncleg.net; and Senator Marc Basnight at 919-733-6854, marcb@ncleg.net.

o     If you are involved in property management, contact your owners and request that they contact their insurance agent. If owners live in other parts of NC, tell them they need to contact their local legislators and express their concerns.

o     Email me the amount of coverage you have on your home-structure only and the total you are paying for coverage! THANKS to those that have emailed me a summary of their total coverage or scanned their policies and sent them. We need to show to legislators just what it costs for insurance on the coast!

o     The current Insurance Commissioner Wayne Goodwin has the power to freeze the May 1 rate increase effective date and also stop the Beach Plan/Fair Plan changes. CALL THE INSURANCE COMMISSIONER'S OFFICE AT 919-733-3058 and express that these changes are not fair and are discriminatory to the coast. Share how much your coverage costs have changed over the past several years and how this extra cost will impact you! ASK THAT HE TAKE ACTION! Then request a written confirmation of the call!

o     Email me at willokelly@gmail.com and let me know of your progress in these areas!

o     Mark your calendars and attend the Coastal Insurance Forum, sponsored by the League of Women Voters, on Thursday, March 5^th at 7:30 p.m. at the KDH Town Hall!

o     We are working diligently with NC 20 on this issue; NC 20 is a coalition of public and private interests in the twenty coastal CAMA counties. For more information, check out www.nc-20.com. Review NC 20's position statement below:

NC 20 Position Statement

                                       North Carolina Homeowners Insurance

 NC 20 supports fair and accessible homeowner's insurance rates across the state.

NC 20 supports a stay of the effective date until May of 2011 on the changes made to the Beach Plan and Fair Plan approved by the Department of Insurance Commissioner on November 21, 2008.

NC 20 supports a stay on the effective date until May 2011 on the homeowners insurance rates ordered December 18, 2008 by the Department of Insurance Commissioner.

NC 20 encourages the legislature to appoint a study committee to comprehensively review the NC Insurance System which includes the Rate Bureau, Department of Insurance, NCJUA, and NCIUA.

NC 20 supports the creation of an Insurance Commission similar to the model of the Utilities Commission.

NC 20 supports transparency, accountability and verifiability of the North Carolina

insurance system for a higher level of consumer protection.

NC 20 supports the use of actuarial data over modeling.

NC 20 supports statewide rate equity for HO-3 homeowner's policies.

NC 20 supports the current maximum coverage limit of $1.5 million under the Beach Plan.

NC 20 supports statewide wind deductibles triggered by named hurricanes and capped at 1% statewide.

NC 20 supports incentive programs and credits for wind damage mitigation

NC 20 does not support a cap on insurer assessments.

Comments

[Willo]

Thank you Bill! Well said! I would hope that, at the very least, anyone who reads this contacts their insurance agent today and find out how they are going to be impacted by these changes. It is a very serious issue!

[Ronnie Roach]

Wow Bill,

When you let go - you really let go. Hope all is well and keep posting the great information.

[D]

Interesting the flood damage was not included. I would love to live near the coast; but I elect not to due to the cost of insurance and the damage risk. I should not have my insurance increased to help cover those that have deemed the risk acceptable.

[Bill Holt]

D - Comments much like others have on this issue... with basically no understanding and knowledge of the truth. Our legislators vote daily on stuff based on 'maybe' accurate info. D, the coastal areas of NC do pay much more than any area in NC. The facts, if you care to address them, indicate that Wind and Hail damage claims in this state over the last 14 years have been fairly low on the coast as compared to the inland areas in NC. The claims are much higher percentage of the total west of I-95. 6 of the last 8 Hurricanes that have affected NC have seriously affected the inland areas. When people get the facts straight and stop attempting to influence Insurance rates based on inaccuracy... this state will be better off as a whole.

[D]

In the article above flood damage isn't factored into; why isn't flood damage factored into the picture? Wouldn't that give a more accurate picture?

[D]

Something I just thought of - there is about 18 coastal counties so that leaves approx 70 counties to the west and the article is comparing those 18 counties against the rest of the state; to be fair the comparison should be against the same number of counties, shouldn't it?

[Bill Holt]

D - Flood Insurance has nothing to do with NC Beach Plan, Fair Plan or the insurance rates of other companies as Flood Damage is covered and backed by our Federal Govt. They pay some things during a flooding event on the coast (National Flood Insurance Program). They do not pay for flood damage to concrete, fences, pools or anything below the flood elevation of record that is beyond structural, electrical or HVAC.

Our Home Owners and Wind and Hail already have a mark up of significantly over inland areas. As to your thinking on comparisons - insured value is what the comparisons should be made on. A home in Charlotte valued (building improvements) at $150,000 is around $500... here in Dare County the identical coverage is at least $1,600 - per year. The Beach plan and other Policies written by insurance companies are forcing values up based on a 70% factor on personal property - based on building coverage’s. They are also raising values based on a fictitious increase in Building Costs. Costs have dropped significantly many months in a row. Here on the coast, we are seeing costs more like back in 2001 or earlier.

The facts & figures are correct... we have researched and given them to the 'powers to be'. The State of NC needs to re-evaluate the insurance ratings and other factors used in allowing Insurance Companies to just rip over the citizens without an ability to control costs in their lives - particularly Home Ownership!