The insurance market on North Carolina's coast has fallen into crisis, and the rest of the state could end up paying the multibillion-dollar bill.
The two major-party candidates for state insurance commissioner agree on that much. The only difference is the way they describe the situation. “Potential catastrophe,” says Republican John Odom.
Democrat Wayne Goodwin calls the beachside insurance market a “ticking time bomb.”
The possibility of a hurricane wiping out the development that has mushroomed along the coast looms as the weightiest issue in the race to succeed longtime insurance commissioner Jim Long. The contest pits Goodwin, an assistant commissioner to Long, against Odom, a former Raleigh city councilman. Mark McMains of Fuquay-Varina, who owns an auto body shop and two towing companies, is running as a Libertarian.
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A government-created insurance plan on the coast, the N.C. Insurance Underwriting Association, was intended as a safety net for property owners who couldn't afford private insurance. Instead, it has become the dominant provider of insurance for beach houses and other coastal property because the association frequently offers the lowest prices.
The association, commonly called the Beach Plan, now covers about $72 billion in property. But it only has enough in cash reserves, assessments on private insurance companies and reinsurance coverage to pay for $2.4 billion in damage.
The Beach Plan pays for any damage beyond the $2.4 billion by collecting from private insurance companies, who likely would pass those costs along to their policy holders in the rest of the state.
“Our economy would be dramatically affected throughout the state,” Goodwin said.
Odom says that without a dramatic reform, private insurance companies will pull out of the state, as Farmers Insurance did in August.
“That'll make all insurance (rates) go up,” Odom said.
The insurance commissioner appoints half of the board that runs the Beach Plan and approves the rates.
Both candidates propose joining the plan with government efforts in South Carolina and Georgia to pool coastal insurance for the three states.
Concerning auto insurance, both candidates want to reduce the size of the state's “reinsurance facility.” This is a state-created nonprofit organization that provides coverage for higher-risk drivers. Private insurance companies are required by law to sell insurance to eligible customers. If the company decides the driver is too great a risk for the premium the company is allowed to charge, it passes the driver and his or her liability on to the reinsurance facility, which now insures about 22 percent of N.C. drivers.
Some drivers shuffled into this group avoid paying higher rates. They can expunge the penalty points on their license, for example, by attending driving school or pleading to a lesser charge. Their insurance rates don't go up as they would with points.
“We have good drivers paying for bad ones,” said Odom.
Both candidates also want the reinsurance facility to adjust rates for “clean risks.” Those are drivers who haven't had tickets or accidents that were their fault for two years but are considered higher risks because of a variety of factors, such as age or type of vehicle.