October 23, 2012

UPDATE: Insurance commissioner denies homeowners rate increase

North Carolina Insurance Commissioner Wayne Goodwin has denied a request by the insurance industry to raise homeowners’ insurance rates by as much as 30 percent along the coast, including in Dare and Hyde counties.

Instead, Goodwin ordered that a hearing be held in the matter of the insurance companies’ request to raise homeowners’ insurance rates, stating that the proposed rates appear to be “excessive and unfairly discriminatory.”

The hearing, which is open to the public, is scheduled to begin on June 3, 2013, at 10 a.m. at 430 N. Salisbury St. in Raleigh. 

Goodwin will serve as the hearing officer and listen to experts from the Department of Insurance and the Rate Bureau, which represents the insurance industry, to decide what rate changes, if any, are warranted.

On Oct. 1, the insurance companies requested an overall statewide average increase of 17.7 percent for homeowners’ insurance rates. However, the requested increased varied greatly across the state -- from as low as 1.2 percent in Greensboro to 30 percent in the coastal counties.

Opposition to the request was immediate and loud from the coastal counties.

A public comment period on the rate filing was held from Oct.3-19 to engage the public in the ratemaking process. The Department of Insurance received approximately 8,800 e-mailed or mailed comments, and approximately 35 people made comments in person during a public comment session held on Oct. 17. 

Dare and other coastal counties passed resolutions opposing the rate increase, and the Outer Banks Chamber of Commerce wrote a letter to protest.  Dare County manager Bobby Outten was one of the people who made comments at the public session.

“The Department of Insurance’s role is to represent the interests of the public,” said a news release today by the department. “After an initial review of the filing and comments submitted by the public, department experts believe the requested rate increases are not justified based on the data submitted.”

According to the release, the following concerns, among others, may be raised at the hearing:

  • Old data: In the ratemaking process, data typically runs two years behind the date of the rate filing. The filing is based on data from 2005 to 2009; however, data from at least as recently as 2010 was available at the time this filing was compiled.
  • Risk factors: The filing includes various risk factors used to calculate the indicated rate changes. The Rate Bureau claims these factors (such as the net cost of reinsurance and compensation for assessment risk) are a necessary cost of doing business in North Carolina. The concern is that the factors do not appear to be justified and result in a substantial increase in rates.  
  • Profit methodology: The Rate Bureau uses a methodology that is not allowed in North Carolina and has been successfully challenged in the 2001 auto insurance case, which was decided by the N.C. Supreme Court. This methodology results in excessive profit factors of 10.5 percent.
  • Deviations: The Rate Bureau includes a factor for deviations (discounts that some insurers give some of their policyholders) in the filing that, in effect, charges discounts back to consumers. The inclusion of a specific factor for deviations has been previously disallowed numerous times in auto filings litigated in the N.C. Supreme Court. 
  • Hurricane model: The hurricane losses are derived using a hurricane model that does not appear to be adequately documented or justified.

The Rate Bureau filing is available for public review on the Department’s website. To view the entire filing, go to http://pserff.ncdoi.net/pc.html  and enter the Serff Tracking Number NCRI-128708881.

The department’s response and the notice of the hearing can be found at http://www.ncdoi.com/media/documents/NoticeOfHearingInTheFilingForRevisedHomeownersInsuranceRates.pdf 

During Goodwin’s administration, there have been no approved homeowners, insurance rate increases. The last homeowners’ insurance rate filing occurred in 2008 when the insurance companies requested a 19.5 percent statewide average increase. A settlement agreement allowed for a 4.05 percent statewide average increase to go into effect in May 2009.

The Rate Bureau can appeal Goodwin’s through the court system, and companies can raise rates while awaiting an appeals decision. The difference in the ordered rate and the implemented rate must be held in escrow. If the Rate Bureau loses its appeal, the escrowed money must be refunded to policyholders who paid too much.

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