Insurance rates on N.C. coast to jump if plan approved

Insurance premiums for Outer Banks beach properties could rise as much as 51 percent if proposed rate increases are approved by the state insurance commissioner.

Elsewhere on the coast, the rates could rise even higher - up to 70 percent. Inland counties could see rates increase 1.2 percent to 22.5 percent.

Changes to the "Beach Plan" program were unveiled Tuesday to a legislative committee examining whether the insurance industry is prepared to pay for the billions of dollars in damage that could result from a huge storm.

The plan, essentially a state insurance pool, was created for property owners who cannot get wind and hail coverage on the open market.

The year long task of revising the rates to match the potential storm damage was concluded around when the economy began its nosedive.

"It just happens to be bad timing," Tim Lucas, personal lines manager for the North Carolina Rate Bureau, said Wednesday. "This was not intended to happen this way."

The bureau, created by the General Assembly to operate in the state on behalf of insurance companies, is responsible for setting property insurance rates. The new rate filing is expected to be submitted to the insurance commissioner next week for review.

Lucas said the Beach Plan covers 18 counties, but the new rates reflect the property values of different areas. The beach territories include the Outer Banks and any land south and east of the Intracoastal Waterway. The coastal areas include the remaining coastal counties.

"We're sympathetic to what these implications mean to the consumers, and we will do what we can to implement them in incremental steps," Lucas said.

In 2000, the insured value covered in the Beach Plan policies was about $10 billion, he said. By 2008, it was up to about $71 billion. At the same time, the premium rates in the coastal areas have been increased 90 percent since 2002.

Still, the plan is woefully underfunded in the event of a major hurricane. One reason is that the Internal Revenue Service limits the amount that can be kept in the reserve fund before it's taxable, said Linda Willey, chairwoman of the Legislative Committee for Independent Insurance Agents of North Carolina.

The study committee, which Willey attended, plans to ask the IRS for a ruling on the limit, she said.

Willey, whose family owns The Willey Agency in Nags Head, said she understands the industry's concern about excessive exposure to damage claims, but she said she is worried that a huge insurance rate increase could be devastating to already hammered homeowners.

"I understand the need," she said. "I just want to make sure that everything we can possibly do is done before we raise rates."

The insurance industry wants more certainty about how the plan would pay for a 100-year storm that could rack up more than $3 billion in insured losses, according to data.

The Beach Plan was first created in 1969 to provide wind damage insurance to home-owners on North Carolina's barrier islands.

The program's coverage has expanded over the years to more counties and situations and now includes 170,000 coastal properties.

The Beach Plan currently charges premiums that are 5 percent or 15 percent above what regular insurers can offer, depending on the policy.

Under the changes that would take effect around Feb. 1, the plan's policies will be 15 percent or 25 percent above what

regular insurers can offer, according to Dewey Meshaw, the Beach Plan's general manager.

Meshaw said deductibles on Beach Plan policies also will increase from 1 percent of a home's value to 2 percent.

Lucas, with the Rate Bureau, said the insurance commissioner has up to 60 days to review the rate filing. If he disapproves, it is likely that a settlement will be reached.

But Lucas said the rates will probably not be approved as submitted.

"If past experience is any indicator, no," he said. "It will be something other than that."

This report contains information from The Associated Press.

Catherine Kozak, (252) 441-1711, cate.kozak@pilotonline.com