North Carolina Legislative Research Commission Issues Property Insurance Rate Making Report

 

 The North Carolina Legislative Research Commission’s Committee on Property Insurance Rate Making (“Committee”) approved its final report to the 2012 North Carolina General Assembly on April 12, 2012.  To view the report, click here.

 The Committee was charged with studying the adequacy of citizen input in property insurance rate making and the manner in which property insurance rates are proposed, reviewed, approved, and appealed.

 The report makes the following recommendations:

• North Carolina’s Insurance Commissioner (“Commissioner”) should be given greater flexibility and discretion in the rate making process. Legislation should be adopted to give the Commissioner authority to select the appropriate rate based on the evidence, not just accept or reject the rate submitted by the North Carolina Rate Bureau (“Bureau”).
• The Committee found that more information about the specific catastrophe model used in a rate filing submitted by the Bureau to the Commissioner is needed. Moreover, specific information concerning a simulated loss should be provided. To facilitate this, the Committee recommends legislation to (1) require a prehearing prior to a rate hearing to give the Department the authority to see and review all materials and documents pertinent to the catastrophe model or modes used in a rate filing; (2) require any simulated loss from a catastrophe model to include specific information such as annual probability, amount of damages, etc; and (3) require the Bureau to submit data from more than one catastrophe model in a rate filing if modeled losses are used.
• According to the Committee, more information on the cost of reinsurance is needed. Legislation is recommended to require information in a rate filing on the cost of reinsurance specific to North Carolina and the line of business for which the filing is being made.
• To ensure that all future insurance commissioners will provide for and accept public input into the ratemaking process, a public comment period should be designated in statute by the General Assembly. Corresponding legislation should require the North Carolina Insurance Department to accept public comments prior to a notice of hearing in a property insurance rate filing.
• The Committee found that territorial boundaries, and the rates approved for certain territories, may not in all cases accurately reflect the risk associated with each area. Furthermore, new technology and data sources may make alternatives to the geographic territory system possible. As a result, the Committee recommends that the Bureau, with assistance from the Department, study these issues and report on any recommendations for change to the 2013 General Assembly.
• In light of increasing premiums, the Committee found that insurers should offer a residential fire policy that excludes wind coverage to those property owners willing to assume the risk for wind losses. Legislation is recommended that would require the Bureau to develop (for approval by the Insurance Commissioner) a policy form that provides residential property insurance coverage without the coverage for the perils of windstorm or hail.
• The General Assembly should continue to study remaining property insurance issues, which include the issuance of tax exempt bonds by the North Carolina Insurance Underwriting Association (also known as the Beach Plan), the creation of a catastrophe fund, reforms to the current rate making system, tax credits to insurers for writing new coverage in the beach and coastal areas, the creation of a citizens’ review board or other public body to participate in rate filings, changes to deductibles, and the effect of hazards and catastrophes in inland areas of the State on property insurance.

In regard to these recommendations, Senator Ralph Hise said that, instead of having the Insurance Commissioner either accept or deny proposed rate changes, he or she should be able to request a rate in between the current and proposed rate.    Senator Hise also commented on the catastrophe modeling recommendation, saying that models can’t be “cherry-picked” by accepting or denying different parts.   He added that he supports the public hearings for all rate filings, but that the time period between filings needs to be shortened, and that the entire process should be more efficient.

Senator Harry Brown agreed that the length of the rate filing process is a problem.  Since insurance is about shared risk, he said, rate decreases are not likely in the current environment.

State Representative Pat McElraft said she didn’t think the Insurance Commissioner’s hands should be “tied.”  Since the Commissioner is already allowed to order a rate between existing rates and the requested rates in automobile insurance filings, she said, property insurance should not be any different.

 At its outset, the Committee was commissioned to study the following:

 (1) The feasibility and advisability of replacing the North Carolina Rate Bureau with a market based rate setting system or with a regulatory commission similar to the North Carolina Utilities Commission.

(2) The adequacy under current law of legislative oversight of the Rate Bureau, the North Carolina Joint Underwriting Association, and the North Carolina Insurance Underwriting Association.

(3) The adequacy under current law of Commissioner of Insurance duties pertaining to protection of policyholders and the public against the adverse effects of excessive, inadequate, or unfairly discriminatory rates.

(4) Whether North Carolina citizens and policyholders should be given a voice in rate appeals under G.S. 58-2-80 through creation of a board or office independent of the Commissioner with standing to advocate on behalf of citizens and policyholders.

(5) The adequacy of the review process afforded by G.S. 58-36-1(2) to persons affected by a rate or loss costs made by the Rate Bureau.

(6) Whether information provided to the public by the Commissioner and the Rate Bureau is adequate to allow reasoned review by interested citizens of the assumptions, modeling, and processes used in setting rates.

North Carolina’s Legislative Research Commission is the general purpose study group in North Carolina’s Legislative Branch of State Government.

 

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