Insurance industry groups continue to argue that North Carolina's state-run insurer of last resort would be unable to absorb the losses from a major storm, with the most recent argument coming from the National Association of Mutual Insurance Companies.
In a letter to members of a Joint legislative committee studying the issue, NAMIC Southeast state affairs manager Liz Reynolds said the immense growth of the North Carolina Insurance Underwriting Association and its lacking of actuarially sound premiums would place the burden of a major storm on private insurers, some of whom could be overwhelmed as a result of the ensuing assessments.
More commonly known as the "Beach Plan," the association was established in 1969 to provide coverage for coastal homeowners who could obtain it from the private market. However, Ms. Reynolds argued that the Beach plan has veered off course from its stated mission, requiring lawmakers to enact significant reforms.
"Because the Beach Plan has drifted from its market-of-last-resort mandate, this effort is a must even though North Carolina has not experienced a significant storm in recent history," she wrote in a letter to members of a Joint Select Study Committee established by the state legislature to examine the issue. "In fact, it's best that we make changes before a catastrophe creates the chaos and devastating market effects experienced by other states."
Almost 40 percent of the total property casualty premiums in North Carolina are underwritten by NAMIC members, Ms. Reynolds told the panel, with many formed to meet the specific needs of policyholders in the state's western, rural areas.
"Smaller insurers are at risk because they would have to take on a greater share of the market if the Beach Plan is unable to meet its obligations," Ms. Reynolds wrote. "And because those companies operate only in North Carolina, they do not have the option of withdrawing from the state to focus on better markets elsewhere."
Ms. Reynolds noted that the committee has been keeping a "very aggressive meting schedule" with two more meetings planned for December 2 and 18. "The committee is supposed to wrap up its work by the end of the year," she said, when it will begin to make recommendations for reforming the Beach Plan to lawmakers.
Last Month, the Property and Casualty Insurers Association of America released a study it had commissioned from Milliman, Inc.
That study found the Beach Plan had "turned into the market of first choice for many coastal property owners," Robert Herlong, vice president and regional manager for PCI, said upon the study's release, due mainly to artificially low premiums.
Milliman found that the Beach Plan had almost $70 billion of exposure along the coast with a growth rate for that exposure of roughly $1 billion each month. A large storm, the study found, could inflict losses of more than $7 billion, which far exceeded the Beach Plan's available funds of $1.5 billion for claims.
In the event of a heavy storm season, a one-time assessment solely on Beach Plan policyholders would be $30,388 per policy. If the assessments were passed on to all personal and commercial property insurance policyholders throughout the state, the average one-time bill per policyholder would be almost twice their policy premium for a large storm season, the study found. An assessment passed on to all state taxpayers would equate to a one time charge of $1,555 per tax return.
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