North Carolina’s insurance rate-making process needs to be more transparent and more flexible, Insurance Commissioner Wayne Goodwin said in a March 21 presentation to the Legislative Research Committee on Property Insurance Rate Making.
Goodwin is putting forward a five-point plan for rate reform that he wants to see the Tarheel State’s General Assembly address in its next legislative session. Goodwin recommended ways to improve property insurance rate-making through greater transparency in rate filings, public comment periods, more flexibility in the insurance commissioner’s authority to set rates and other measures.
“My job, ultimately, is a balancing act,” Goodwin said. “Consumers want to know they’re getting a fair insurance rate, particularly in the coast areas of North Carolina. The insurance industry wants to know it has the opportunity to make a fair and reasonable profit.”
Goodwin’s first recommendation centered on increasing the transparency of property insurance rate filings. He argued that the current data used to determine insurance rates is not sufficient. His recommendation would make providing additional information on storm risk a requirement before a rate decision is made. Goodwin also argued that more information on reinsurance costs is needed to ensure that rate hikes based on increasing reinsurance costs are justified.
Goodwin’s second recommendation would give the state insurance commissioner more power to change insurance rates if he or she feels a proposed rate change is unjustified. Currently, the insurance commissioner in North Carolina is forced to either accept or reject exact changes proposed by the Rate Bureau. Goodwin argues that this increased flexibility would address many industry concerns about adequate rates and create a fairer rate process.
The third recommendation supports the Rate Bureau’s efforts to expand the number of coastal territories so that residents who are further inland, but still within the coastal zone, may have lower rates then those with homes along the sandy coastline. Increasing the number of territories is an idea that Goodwin supports, and he plans to work with the Rate Bureau to move forward on this plan.
Fourth, Goodwin recommends that the Department of Insurance and the state Beach Plan work together to prepare a plan for the worse case scenario for a season with multiple major storms. While Goodwin admits that reinsurance will have to play a role in preparing for these risks, he would like to research other options outside reinsurance to build up a surplus, like tax-exempt bonds.
Goodwin’s final recommendation involved the use of tax credits to encourage insurers to write new policies along the Atlantic coast.
Finally, I’d like to discuss a recommendation involving tax credits. Due to the current condition of the state budget, I realize this recommendation is not likely to come to fruition. However, I’d like to recommend that for any new full coverage policy– including wind and hail– a licensed insurance writer in the beach and coastal regions for the taxable year…be allowed to claim a non-refundable credit against the premium tax imposed for the policy.
As it is in South Carolina, the tax credit could only be claimed once for a structure regardless of the policies written on the structure. This recommendation would help encourage companies to write more on the coast and discourage the growth of the residual market in the Beach Plan.