Warning: North Carolina Beach Plan Could Swamp Smaller Insurers

November 20, 2008

Another insurance trade group has joined in urging North Carolina officials to reform the state’s coastal insurance pool before it grows so big it swamps smaller insurance companies.

The anticipated growth of the North Carolina Insurance Underwriting Association, commonly known as the Beach Plan, could wipe out many smaller private insurers in the state, according to the National Association of Mutual Insurance Companies (NAMIC).

NAMIC is urging policymakers to improve and strengthen the pool before the next major storm hits.

A study committee set up by the Legislature is charged with developing recommendations for the plan, which was established in 1969 to provide property coverage for coastal homeowners unable to obtain insurance from the private market.

Insurance experts say the plan’s growth, combined with actuarially inadequate rates, has left it unable to pay for a major storm, forcing private insurers to pick up the tab. NAMIC urged the panel to take immediate action.

“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,” wrote Liz Reynolds, NAMIC’s Southeast state affairs manager, in a letter to the legislative committee. “In fact, it’s best that we make changes before a catastrophe creates the chaos and devastating market effects experienced by other states.”

NAMIC member companies underwrite close to 40 percent of the total property/casualty insurance premium in the state. The majority of the companies are mutuals.

Another insurer group, the Property Casualty Insurers Association of America, commissioned Milliman Inc. to conduct an actuarial analysis. According to the Milliman report, the Beach Plan has no more than $1.5 billion available to pay for hurricane losses. However, a large storm could likely cost more than $ 7 billion, leaving a $6.2 billion deficit and affecting the plan’s ability to pay claims.

North Carolina has a “vibrant market of single-state insurers serving a unique purpose” but “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,” 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.”

NAMIC’s Reynolds warned that many smaller, single-state insurers in North Carolina could go out of business after a hurricane if the Beach Plan is allowed to continue growing without the financial foundation to sustain increased exposure.

“Adequate rates are a must if we are to address the steadily increasing exposure to losses. And consumers must be empowered to take responsibility for risk reduction,” she wrote. “Ultimately, solutions for improving and strengthening the Beach Plan must support a diverse and vibrant marketplace that provides a wide range of financially prudent choices for consumers.”

Source: National Association of Mutual Insurance Companies www.namic.org

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