New arrivals to the North Carolina coast are often pleased with the amount of house they can buy here from the proceeds of their home in larger markets. The confusion and shock come later when they shop for homeowners insurance.
So says Jared Cranford, director of personal lines and sales at Wells Insurance Co. in Wilmington.
Newcomers, he said, “are not used to this kind of insurance stuff, like the wind and hail piece [of coverage] you may have to go to the state for. We’ve had to learn how to have these conversations with people who get sticker-shocked by the [homeowner] insurance cost here.”
Most coastal residents with a mortgage are required by their lenders to carry wind and hail policies separate from their standard homeowners’ policies. If they can’t get it from their carrier, they must turn to the N.C. Joint Underwriting Association.
Cranford and his colleagues have heard from plenty of their policyholders since the N.C. Rate Bureau issued its proposed rate hike schedule in January that would take effect Aug. 1. On average, the bureau – which represents insurance carriers in the state – is asking for a 42.5% increase in annual premiums.
But that’s an average, cautions Mike Causey, who has served as North Carolina’s insurance commissioner since 2017. In some mountain areas of the state, the proposed increase is just above 4%. For beach locations in Brunswick, Carteret, New Hanover, Onslow and Pender counties, however, the Rate Bureau is asking for a 99% premium increase. Depending on their proximity to the coast, homeowners in the remainder of Brunswick, New Hanover and Pender counties would see either a 71.4% or a 43% rate increase, under the proposal.
On Jan. 5, following the bureau’s request, the N.C. Department of Insurance opened a one-month comment period to allow homeowners to weigh in. Causey said he heard from more than 25,000 residents, most objecting to the proposed increases. So, in February, he rejected the bureau’s request and set an Oct. 7 date for a court hearing – the next step in a resolution process. He declined to negotiate a settlement before doing so.
Causey has 45 days after the court hearing to issue an order.
“People are hurting [economically]; they can’t stand this type of increase, and that is why, after the public comment period, I said no,” Causey said in a recent interview, adding he believes the proposed rates are “discriminatory on parts of the state.”
The previous rate request, in 2020, requested a state average of 24.5%. Causey gave that a thumbs-down.
“When I said no to that, we set up a court date but ended up negotiating an average of 7.9%, with a 10% cap on rate increases in any county,” he said. “We also put in a stipulation that the Rate Bureau could not ask for another rate increase for another two years.”
With distractions from the COVID pandemic, the bureau requested no rate increase in 2022.
Much has changed in the past four or five years to alter the homeowner insurance equation, Cranford said. Some changes have happened as a result of the pandemic, but the increased frequency of natural disasters is another driver.
“Since 2019, there have been, in the U.S. alone, 72 separate weather events – from wildfires to hurricanes, flooding, ice storms, hail, tornadoes – that breached the billion-dollar mark,” he said.
“Take that, and then you’ve got all these other things: an increased cost of construction, labor force issues, supply chain issues that started happening around COVID.
“Basically, a lot of the losses sustained in this five-year period were devastating to insurance carriers.”
Another factor affecting insurance companies’ bottom lines was the low return on their investments from the 2008 economic downturn and the turbulent pandemic period.
“Insurance companies take your money and invest it,” he explained. “If they don’t make as much, they can’t maintain enough liquidity to support reinsurance treaties, claim payouts and regulations.”
When reinsurance companies, which insure the insurance companies, see that a company’s outflow exceeds its revenues, they raise their rates. That cost gets passed along to the consumer, Cranford said.
Insurance problems in Florida have been in the news in the past few years as claims payments have made it unprofitable for some insurance carriers to continue coverage there. That’s starting to happen in North Carolina as well, Cranford said.
“Carriers in our market have gone insolvent over the last few years, but more commonly, what happens is they will look at their book [their roster of customer policies] and say, ‘In order to meet our reinsurance terms, we need to get off a certain amount of our business,’” he said.
Reinsurance companies can dictate to a carrier how much of its business it needs to drop or how much more it needs to charge so it can continue to do business, Cranford said, pointing out that more limited geographic coverage or a curtailed client roster cuts down on the company’s revenues.
Actuaries also examine a carrier’s book of business, identify market segments that are no longer profitable and advise the carrier not to renew policies in those segments.
“This is very common and has happened to clients in our region,” Cranford said, adding that insurance woes were aggravated for some homeowners who bought policies from relatively new and “less experienced” companies unprepared to withstand the number and expense of claims from events like hurricanes.
“Prior to 2020, there were carriers in the state, especially in coastal North Carolina, who were buying up business like crazy,” he said. “Their rates were so cheap, and people who had been paying out the wazoo for so long – these people were jumping. What happened is, when all this went south, all those carriers ejected from our market or just folded.”
Causey said some of the insurers’ woes do result from the increasing frequency and severity of wildfires and weather-related events. He sees what sea-level rise is doing along the coast and acknowledges the impact of inflation on the cost of repairing and rebuilding. But he wants the insurance carriers to control their costs better.
“I am asking these companies to do a better job of tightening their belt and managing their resources,” Causey said, adding that fraud is a major contributor to insurance companies’ declining revenues.
“The general statutes in North Carolina actually require insurance companies to report suspected fraud to the Department of Insurance,” he said. “Some companies do a great job of that; others do not – they handle [cases] internally, which doesn’t work. Since I have been in this job, I have tripled the number of sworn law enforcement officers. Our investigation is among the strongest in the nation. We have proven that insurance fraud is easy in North Carolina.”
Insurance fraud, Causey said, pervades all types of insurance coverage, from medical personnel miscoding services to increase a patient’s reimbursement to homeowners inflating the value of stolen items. He cited data showing that at least 20 cents of every dollar of insurance companies’ revenue are lost to fraud, and he singled out one rampant type of property fraud.
“One of the biggest scams is roofing,” Causey continued. “I have a background in construction and know that some of these companies are going door to door, telling people they can get a new roof, no charge [because insurance will cover it]. This is one of the biggest factors in rising premiums.”
Although the N.C. DOI aims to protect state residents from excessive insurance costs, Causey recommends one extra piece of protection: flood insurance. He’s been quoted as saying, “If it rains where you live, you should have flood insurance.”
“We’ve seen people get flooded who never thought they would be flooded,” he said. “Places in the mountains; rivers that have overflowed their banks; flooding caused by landslides.”
Less than 2% of coastal homeowners carry flood insurance, but claims have risen, Causey said, with many people unaware that standard homeowners policies cover water damage from rain but not from flooding.
“After Hurricane Florence [in 2018] we worked with the Rate Bureau to develop private flood insurance,” Causey said. “We were on track to hit the ground with it; then COVID hit. Now more companies are writing flood insurance policies or riders to standard policies.”
