North Carolina Governor Signs Beach Plan Reform Measure

Legislation in North Carolina meant to reform the state's insurer of last resort was signed into law by Gov. Bev Perdue -- a move the insurance industry said is a step to stabilize the property insurance market.

The measure, HB 1305, caps assessments on private insurers at $1 billion. Previously, there was no limit on the assessments. The law establishes a 10% surcharge on premiums per year if damages are more than what the Beach Plan has plus the $1 billion in assessments. To further strengthen its financial standing, the Beach Plan, or North Carolina Insurance Underwriting Association, will now be limited to writing homes valued $750,000 or less, down from $1.5 million. The plan's surpluses will be retained each year, not distributed back to member insurers.

"Lawmakers advanced HB 1305 this year through thoughtful deliberation to prevent a state property insurance crisis," said David Sampson, president and chief executive officer of the Property Casualty Insurers Association of America, in a statement. "The General Assembly responsibly chose to solve the problem before the storm, instead of after a devastating event. Gov. Perdue has taken an important step in securing the financial stability of North Carolina following a hurricane or major storm."

The bill was signed as Tropical Storm Danny gains strength in the Atlantic Ocean, several hundred miles from Cape Hatteras, N.C. However, even though Danny is expected to become a hurricane, most forecasters have the storm tracking eastward, between the U.S. East Coast and Bermuda.

PCI commissioned an examination by actuarial group Milliman Inc. late last year, which concluded the Beach Plan is growing at a rate of about $1 billion a month and could face a $6.2 billion deficit if a large storm (1-in-250 year scenario) strikes (BestWire, May 26, 2009). The Beach Plan insures homeowners in 18 coastal counties, covers about $70 billion to $74 billion of property and pockets about $1.5 billion to $2.5 billion in cash and reinsurance to pay claims. The study concluded policyholders could have faced up to a 200% rate increase without the Beach Plan reform.

In 2008, the top five writers of homeowners multiperil insurance in North Carolina, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with an 18.9% market share; Nationwide Group, with 15.7%; North Carolina FB Insurance Group, with 13.0%; Allstate Insurance Group, with 9.9%; and Travelers Group, with 5.3%.