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NC Insurance Commissioner Raises Concerns About Proposed Rate

Managing Editor

CAROLINA BEACH - The North Carolina Rate Bureau filed a request with the North Carolina Department of Insurance on October 1, for insurance rate adjustments calling for a 30% increase for coastal homeowners insurance rates.
The request calls for an average statewide increase of 17.7%, with increases as high as 30% in New Hanover, Brunswick, Pender Counties and other coastal counties.
The request sets June 1, 2013 as the effective date for the increases.
On Tuesday October 23, State Insurance Commissioner Wayne Goodwin issued a statement saying, "Initial review raises concerns that the rate increases requested by the insurance companies may be excessive and unfairly discriminatory."
The public hearing 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 to decide what rate changes, if any, are warranted.
According to the NCDOI,  the Department's role is to represent the interests of the public. 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. 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.
A public comment period on the rate filing was held from October 3-19 to engage the public in the ratemaking process. The Department of Insurance received approximately 8,800 emailed or mailed comments, and approximately 35 people made comments in-person during a public comment session held on October 17.
The filing is available for public review on the Department’s website. To view the entire filing, go to and enter the Serff Tracking Number NCRI-128708881.
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.
If the Rate Bureau wishes to appeal the Commissioner’s decision, it can do so 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.
Earlier this month the Town of Kure Beach organized a bus trip for elected officials and residents to attend a public hearing in Raleigh to voice their opinion to DOI officials. The Wilmington City Council adopted a firm resolution opposing the requested rate hikes calling for a more equitable process to determine insurance rates across the entire state.