Friday, August 5, 2011

Consent To Rate Letter – Don’t Just Sign Over A Blank Check To Your Insurance Company

The consent to rate letter in North Carolina is the legal way for your insurance company to get you to agree to let your insurance company charge you more than the highest rate allowed by the NC Insurance Department. If you receive this form from you insurance company, don’t sign it without first checking in with an independent agent that you trust. There are usually many much better options than to sign this letter and watch your rates skyrocket. I’ve written about the consent to rate letter and what you should do in the past and you can, click here to read past blogs. Now, however some insurance companies are employing the consent to rate letter in a more insidious fashion. Their new technique uses this form as a way to get around ratemaking rules in North Carolina. Be careful; don’t sign this without a second opinion.

To understand the consent to rate form, it helps to understand how insurance rates are generated at in North Carolina. This state is unique in that the NC rate bureau holds most of the power in the rate making process. Here, the rate bureau decides the maximum rate that insurance companies can charge for each type of policy. After that, each insurance company then files their deviations from this rate. Usually, the rate bureau maximum rate is far above what any insurance company would be able charge for a policy and still be competitive. What happens is that insurance company rates are discounted down from the maximum rate, often as much as 55%. There is a loophole to the maximum rates that can be charged though. If an insurance company can get you to agree in writing to pay rates above the rate bureau maximum rate, then they are allowed to do so. The consent to rate form is the vehicle for getting your written consent. So, whatever you do, don’t sign a consent to rate form without first exploring all of your alternatives.

There are legitimate uses for the a consent to rate form. Imagine if you have had a few insurance claims and you are not able to buy insurance anywhere from any other company because they all think you are just too risky for the rates that they have filed with the rate bureau. Using the consent to rate letter allows them to charge a high enough rate to accommodate the riskiness of your particular situation. In that situation, the consent to rate form can allow you to buy insurance when otherwise you might not be able to.

Right now, the marketplace for homeowners insurance in NC is currently in a state of turmoil. The biggest reason for this is because the high risk beach houses that are covered by the market of last resort provided by the government do not have a high enough rate to cover their risks for wind and hail and hurricanes. This wind pool is extremely underfunded and will result in billions of dollars of losses in the event of a large hurricane hitting our coast. The underfunded risk of loss used to be pushed on to the backs of the insurance companies on an unlimited basis. Insurance companies of course do not like unlimited liabilities so a few years ago the law was changed to allow wind pool shortfalls to be assessed to all homeowners policies across the state. This means if there is a large hurricane, then your homeowners policy, no matter where in NC you live, will be assessed with an annual assessment of up to 10% of the policy premium each year until the wind pool is made whole again. If we have more than one hurricane then you could see multiple assessment charges on your policy each year. This sneaky and horribly unfair approach will still not cover the shortfall that the wind pool might face and so insurance companies remain on the hook for a large share of this risk as well. This drives the insurance companies to want higher rates for all North Carolina homeowners policies but they have trouble getting around the rate bureau. They need a loophole for an end run around the rating process. Now I am hearing that some insurance companies are using the consent to rate form to do just this. They plan to have their customers sign a consent to rate form on every policy, then they can hold these consents in your file until they need to use it to dramatically increase your rates.. If you sign one of these forms on an open ended basis like this, then your insurance company has essentially hung the sword of Damocles over your head. You will be agreeing to a rate increase above the maximum rate, sometime in the future, to be used when the insurance company wants it or needs it. I have to believe that eventually the rate bureau will not tolerate this kind of rate meddling but until they do, you should do whatever you can to be sure that you don’t let them take advantage of you. DO NOT SIGN A CONSENT TO RATE FORM UNTIL YOU HAVE EXPLORED YOUR OPTIONS WITH AN INDEPENDENT AGENT!!

At Clinard Insurance Group, we are an independent insurance agency located in Winston Salem, NC. We represent dozens of different insurance companies and we can help you with your home and auto insurance, no matter where you live in NC. If you have received a consent to rate form and are not sure what to do, please call us, toll free, at 877-687-7557 or visit us on the web at

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