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Coastal insurance problems pose ramifications for all of North Carolina

http://66.225.205.104/SG20090324.mp3

In the late 1960s, the state of North Carolina created an insurance policy meant to offer supplemental coverage to homeowners in areas prone to hurricanes. But in the last few years, the number of properties covered by the so-called "Beach Plan" has increased dramatically. Now, $72 billion worth of homes are underwritten by the Beach Plan, but it could only pay out around $2 billion if a major storm hits the coast. North Carolina's new insurance commissioner, Wayne Goodwin, says it all adds up to a "ticking time bomb" for the state. He spoke with WFAE's Scott Graf and explained how the state got into the current predicament. Here's a transcript of that conversation: Goodwin: Since the coastal wind pool was established in 1969, it did not keep up with the costs of insurance for the appropriate risk in that part of the state. To sum it up, the Beach Plan, which is supposed to be the market of last resort for folks who live in those coastal 18 counties, has become the market of first resort, and has better prices for homeowners insurance than the private market. Scott: I've read that because of the shortfall in the states' pool, private insurance companies are pulling out of the state. Explain the relationship and why that is. Goodwin: With insurance, it is based on risk. You are assigned a premium based upon what your risk is for there being a loss of some sort. The insurance companies are to provide a service, but they are also to make a reasonable profit in this state and in every state. If insurance companies determine that they cannot make a reasonable profit, or if the rates are inadequate in certain areas because of a bigger risk, they have to make a business decision whether to scale down the amount of writings they have in one part of the state, or to leave the entire state completely. When they do that, they not only choose not to write homeowners insurance on the coast - that means they will not write homeowners insurance statewide, they wouldn't do auto insurance, they wouldn't do workers comp, and other types of insurance, too. What's happening on the coast is a statewide problem. This is why this topic of your show matters to Charlotte and all of North Carolina . If the wrong decision is made on fixing this problem, rates will accelerate across the state, and there will be an insurance affordability and availability crisis all over North Carolina . I think there's some data your listeners may want to hear about, if you'd like for me to share that with you as well. Scott: Sure, go ahead. Goodwin: 8.9 percent of all houses in North Carolina are in the coastal region. That's 18 counties, which means about 91 percent of all homes are elsewhere in the state. But of the 8.9 percent of all homes that are in the coastal region, they are responsible for 45 percent of all the hurricane losses and claims. So, much less than 10 percent of all the homes in the state are responsible for 45 percent of the claims. The other statistic that we need to know, is that there is a 8.5 to 1 greater exposure for hurricanes in the coastal area versus everywhere else in the state. Whether it's Raleigh, Charlotte, Greensboro , or Ashville, we have to have rates that are based on true risk and on the data, and not on politics. Scott: So you're essentially saying if you choose to live in the Coastal areas where there is an eight times greater chance of a hurricane, you should therefore be paying a higher insurance rate, and significantly higher, I suppose, in some cases. Goodwin: Depending upon the area you're in, yes. The coastal area and beach areas generally are a much riskier place to be. The coastal areas and the beach area's must have a higher rate than other areas of the state because the data demands it to be such. Scott: If only 9 percent of the state's houses are in this area where hurricanes hit at a dramatically higher rate than anywhere else in the state, then the population should be lined up accordingly, and therefore representation in Raleigh should be as well in the state Legislature. Wouldn't that make it easier for folks in the piedmont and in the mountains to have their way with this, assuming their thinking is similar to yours? Goodwin: If they speak up. That's why I'm meeting with as many people all across the state as I can, both in radio, and in person, and in town hall meetings to provide the data, provide the explanation. No one likes the rates to go up, but we have to look at what the data shows to do what's fair and equitable. The question is, do folks want to subsidize areas that are much riskier, or do they want rates that are based on data, and that are fair?