January 30, 2015
Hatteras Island Real Estate:
Insurance consent to rate letters
By TOM HRANICKA
at the title of this article, I am sure that most readers are asking,
“What is a consent to rate letter?” and “Why should I be interested?”
The answers to these questions are interesting, informative, and
In order to better understand the role
of consent to rate letters in the world of insurance, it helps to have
some background. In mid-December of last year, the North Carolina
Insurance Commissioner, Wayne Goodwin, ordered a zero percent overall
statewide change in homeowner insurance rates effective June 1, 2015.
actual rates varied by geographic territory and type of insurance. In
the beach areas of Dare, Currituck, and Hyde counties, the
Commissioner’s decision decreased homeowner insurance rates by an
average of 9 percent. The mainland areas of these counties saw an
average decrease of 12 percent.
The insurance companies had
requested an increase of 35 percent in the beach areas and a 10 percent
increase in the mainland areas. Overall, the insurance companies had
requested an average statewide rate increase of 25.6 percent.
to say, the insurance industry was not pleased with the Insurance
Commissioner’s decision. The North Carolina Rate Bureau, which
represents 100 insurance companies selling policies in the state, has
indicated that they will file an appeal of the decision with the state
Court of Appeals because the companies feel that rates are inadequate
to cover their potential losses. It could take up to a year before the
court issues a decision. The Rate Bureau could also file a new rate
request with the state Insurance Department.
Journal reported that the Rate Bureau said that it sought the increases
because of a sharp rise in anticipated repair, replacement, and
rebuilding costs and the growing risk of catastrophic losses from
hurricanes and other severe storms.
While the disagreement
concerning homeowners' insurance rates simmers, the insurance companies
are not sitting still. This is where “consent to rate” letters enter
into the picture. Under North Carolina law, insurers are allowed to
increase rates up to 250 percent over the North Carolina Department of
Insurance approved rate if the increase is agreed to by the
policyholder. The consent to rate practice essentially allows insurance
companies to circumvent the Insurance Commissioner’s decision.
Here is how the consent to rate practice works.
insurance company sends a consent to rate letter to a policyholder
accompanied by a consent to rate form. In the letter, policyholders are
given a choice of either agreeing to pay a higher insurance premium or
risk losing their coverage, and they are given a time frame within
which to respond. According to the Star News of Wilmington, N.C., one
policyholder was given 10 days to decide whether to accept an increase
of more than 120 percent. This is not a typical increase. Reliable
sources reported that most increases have been on the 15 to 20 percent
range with some as high as 50 percent.
Consent to rate letters
have historically been used for higher risk policies. Now, it appears
they are being used as a loophole to get around the Insurance
Commissioner’s December rate decision. It is important to note that
consent to rate letters are used with all types of insurance policies,
not just homeowners' insurance policies.
As I understand it,
consent to rate letters have been in use for some time without a lot of
publicity. One estimate is that about 75 percent of policyholders in
eastern North Carolina may have received a consent to rate letter at
one time or another, and 40 percent of eastern North Carolina
policyholders have signed consent to rate forms.
has recently become a higher profile issue since it has been brought to
the attention of state legislators and government officials. Last
August, Goodwin said that he had already received 700 complaints so far
in 2014 about consent to rate forms. There are indications that the
consent to rate topic will be brought to the attention of insurance
committees in the North Carolina House and Senate.
What actions should policyholders take if they receive a consent to rate letter?
do not ignore the letter, or your policy coverage could lapse. Then,
contact your insurance agent, informing them that you have received the
consent to rate letter and that you do not want to sign it. Try to get
a firm estimate of what your renewal rate will be if it is not
specified in the letter. Review your policy, confirming that the
dwelling value accurately reflects the cost to rebuild the structure in
the policy year and discuss deductible options for the policy.
Adjusting the deductible amount may eliminate the insurance company’s
consent to rate requirement.
Next, contact the North Carolina
Insurance Department (www.ncdoi.com/contacts) and let them know about
the letter you have received so they can keep informed about what is
going on around the state. Finally, shop around by calling other
insurance agents to see what kind of rate they may be able to offer you
for the policy type in question. Another piece of good advice is to do
your shopping before you receive a consent to rate letter so you won’t
feel the undue pressure caused by response deadlines.
mind that once you sign the consent to rate form, it applies to all
future renewals. While the immediate increase may not be too severe, it
could ultimately be as high as a 250 percent increase under the law
without further approval being required from the policyholder.
all fairness, the consent to rate issue is, in some cases, not as black
and white as it might initially appear. It is in the consumer’s benefit
to have as many insurance companies as possible writing policies in
North Carolina. Some companies have said that if they cannot charge
rates that they consider to be adequate for the risks they are
insuring and if they do not have consent to rate as a tool, then they
will leave the state. According to Commissioner Goodwin, that would
result in fewer options for the consumer and potentially higher rates.
are calls from many stakeholders for a complete review of insurance
practices and policies within the state. It will be interesting to
watch how these discussions, debates, and ultimately actions play out.
In the meantime, caution is the watchword for consumers.
(Information sources for this article are available upon request)
Questions and comments may be sent to Tom Hranicka at P.O. Box 280, Avon, NC 27915 or by e-mail to [email protected].
Copyright © 2014 Tom & Louise Hranicka. All rights reserved.