Property insurance rate storm brewing in North Carolina

Daniel Workman

First, here's the good news.

Representing property insurers in the Tar Heel State, the North Carolina Rate Bureau filed a request Jan. 4, 2011, to lower premiums for "dwelling fire" insurance by a statewide average of 6.6 percent.

Dwelling fire policies usually:

• Cover unoccupied structures that don't qualify for standard coverage like rentals, second residences and investment homes.
• Offer fewer coverage options.
• Exclude liability coverage.
• Pay the actual cash value of losses, not full rebuilding costs.

And now here's the bad news.

Overall rate spike

The rate bureau filing also asks for a statewide average rate hike of 36 percent in 2011 for "extended coverage" policies. Property insurance costs would rise significantly for about 570,000 policyholders.

Extended coverage policies protect against physical property damages from risks like:

• Wind and hail (about 39 percent of North Carolina's extended coverage losses in 2007, according to numbers in the bureau's rate request filing).
• Water damage and freezing (about 35 percent).
• Vandalism and malicious theft (about 6 percent).
• Other property damage (20 percent).

If approved, proposed premium increases for extended coverage would be severest for coastal territories in Hurricane Alley. According to the Outer Banks Association of Realtors, these extra costs could amount to a $1,000 annual premium increase for a $300,000 residence in eastern North Carolina.

Based on the rate bureau's filing, extended coverage rate increases for counties like Bladen, Columbus and Robeson near North Carolina's stormy southeast shores would be higher than those in north-central parts of the state.

Rate caps

It could have been worse. To insulate policyholders living in the riskiest coastal areas from potentially crippling insurance costs, the bureau governing council capped rates for all territories.

The cap equals a maximum increase of 25 percent per territory, and applies to the total premium for dwelling fire plus extended coverage. In other words, coverage for dwelling fire and extended coverage combined cannot increase by more than 25 percent.

Without this cap, North Carolina insurance increases would have averaged:

• 110 percent for extended coverage.
• 68 percent for combined dwelling fire plus extended coverage.

With the bureau's cap, the statewide combined average increase (for dwelling fire and extended coverage) is 21 percent.

North Carolinians react

The North Carolina Department of Insurance has received written comments and public testimony from more than 800 residents concerned with the rate increases.

A list of talking points from the Outer Banks Association of Realtors argues that the increase is coming at a "horrible time" amid low home values and foreclosures. Many residents are "close to the breaking point financially," the association says, and the rate hikes could hurt the market even more by driving homeowners to sell or go into foreclosure.

If approved, the new rates would take effect by June 1, 2011. Both existing and new policies would be affected.

If state insurance officials and the bureau fail to agree on the rate requests, Insurance Commissioner Wayne Goodwin will hold a public rate hearing. This will allow both insurance companies and consumers to argue their positions.