With Eye on Florida, N.C. Lawmakers Overhaul Insurance Law

Insurance department omnibus bills in state legislatures are often seen as housekeeping or budget items that may revise regulatory language, fund insurance department positions, or clean up the wording of previous laws.

But in North Carolina this year, supporters of Senate Bill 452 saw it as an opportunity to correct some problems and raise property insurance claims and policy limits that had not been updated in more than a decade.

The changes took effect this month when the governor let the bill become law without his signature. The provisions are all needed to help bring the state closer in line with the escalating cost of home and automobile repairs – and the cost of reinsurance for carriers, the bill’s chief sponsor said.

“It appears that we’re going to be headed for a perfect storm in the next 12 to 18 months, where reinsurance is high and unstable; the financial markets are unstable; and inflation, along with hard property markets and carrier access, are all culminating at the same time,” said state Rep. Todd Johnson, R-Monroe.

Johnson knows a bit about the business: He is a second-generation insurance agent in the state and is chairman of the House Commerce and Insurance Committee.

Key provisions in the law include:

Higher Minimums on Bodily Injury

The law raises the minimum auto insurance bodily injury liability requirement, from $30,000 to $50,000, per person; and raises the per-accident minimum, from $60,000 to $100,000.

Some insurance carriers had expressed concern about that, noting that they could be forced to pay higher limits before the state’s rating bureau and insurance commissioner had agreed on a rate increase, Johnson said.

Insurance Commissioner Mike Causey supports the higher minimums, noting that they should help protect consumers, a spokesman said.

The previous requirements were so low that some agents refused to sell auto policies with the minimum liability, said Joe Stewart, vice president for governmental affairs at the Independent Insurance Agents of North Carolina.

Higher Limits on Claims Paid After Insolvencies

The North Carolina Insurance Guaranty Association, until now, had been limited to $300,000 per claim for insurers that have been deemed insolvent and have put into receivership. The bill raises the limit to $500,000.

“That’s the unsung hero in this bill, I believe,” Johnson said. “$300,000 for a house right now wasn’t a whole lot of money.”

He and Stewart both said the increase was needed to protect policyholders, due to the rise in home prices and replacement costs, but also because of the number of insolvencies in Carolina by carriers that started out in the turbulent Florida market.

“The issue is, a lot of these property carriers that have been popping up out of the state of Florida, they grow their business by depopulating Citizens (Property Insurance Corp., Florida’s insurer of last resort but now the largest in Florida),” Johnson said. “They expanded into other states too quickly and were undercapitalized.”

Johnson argued that starting out with take-outs from Citizens is not necessarily a bad business model. But some carriers took that step in years when Florida had few hurricanes, then ended up getting bitten by later storm losses and other expenses. Florida has seen nine property insurers go insolvent in the last two years, several of which also did business in North Carolina.

Higher Policy Limits for Coastal Property

North Carolina’s Insurance Underwriting Association, also known as “the Beach Plan,” is the insurer of last resort for property owners in vulnerable coastal areas. But until now, the plan’s payout was limited on residential properties to $750,000, and to $3 million on commercial property. The new law raises those limits to $1 million and $4 million.

Until the change took effect, some property owners were forced to go to the secondary or excess markets to find coverage above the limit, often seeing “exorbitant” premiums, Johnson said. Commissioner Causey supports the changes. Some carriers were concerned that higher payout limits for the Beach plan could eventually trigger an assessment on all policyholders, Stewart explained.

Certificates of Insurance

In recent years, some contractors have pressured Carolina insurance agents to provide certificates of insurance that purported to show that all company officers in all possible work locales were protected by the underlying policy. Some have warned agents they would lose customers if they didn’t comply, Stewart said.

But agents may not have that information at hand and could violate laws and regulations by bending the rules, he noted. The new law gives them some cover.

The law will “prohibit a person from knowingly preparing, issuing, requesting, or requiring a certificate of insurance that includes information not contained in the underlying insurance policy,” reads a legislative analysis of the bill.

SB 452 makes a number of other changes to insurance rules in the state. The full bill can be seen here.