The Consent To Rate Letter – Additional Confusion For The Consumer

You may have come across one of my previous blog articles decrying the confusion caused by the North Carolina insurance industry’s consent to rate letter.  If you missed them, click here, or here to read a few.   All of these articles though will lead to one very important point for you to remember:  If you receive a consent to rate letter from your insurance company, do not blindly sign and return it.  This is because doing to just gives them carte blanche to charge you insurance rates that are likely to be far higher than you will need to pay for your home or car insurance policy.   This article will focus on just one more feature of this letter that has caused confusion among consumers and left them facing higher rates than they ever expected to have to pay.

I want to start though with a quick background lesson on why North Carolina has a consent to rate form as a part of its insurance system.  Here in North Carolina, the rates for homeowners insurance and auto insurance as well as many other types of insurance policies, are heavily regulated.   Generally speaking, rates are approved or not by the NC Insurance Department as the maximum rates that can be charged for various types of insurance policies.  The insurance companies then file their rates as deviations, or discounts below the maximum rates.  Very few people will pay the maximum allowable rates for their homeowners insurance or their car insurance.  Occassionally though, an insurance company may feel that they would need to charge a specific client more than the maximum allowable rate because that client is perceived to carry a higher risk of loss for the insurance company.  In order to charge rates above the maximum allowed rate, they must have the client’s permission in writing.  And in cases where that client understands that their risk is higher and also has nowhere else to go to obtain insurance, then this is a good arrangement.    Unfortunately the consent to rate letter, once a rare occurrence is now a work around for many insurance companies to get higher rates out of their customers than the Insurance Department would allow.  This has happened in North Carolina in particular because the rates that are allowed have come to seem inadequate by many insurance companies after all of the money they lost to storms in 2011.  Many now use a consent to rate letter on huge swaths of their books of business just to circumvent the rate making process.    This should make it clear that signing a consent to rate letter without checking around for a better rate is almost always going to mean that you will be left paying far more for your insurance policy than you would otherwise have to pay.

Now that we are seeing such widespread use of the consent to rate form in NC, I felt that it was appropriate to let you in on another aspect of this letter that has misled some insurance consumers.   I am talking about the estimated maximum premium that is shown in the letter.  If you receive a consent to rate letter to sign, you will probably see that there is a mention of the estimated rate that you will be expected to pay if you sign the letter.  While this price might appear to be an accurate estimate, often it is far from the total that you will be paying if you sign the letter.  This is because many insurance companies will simply print the new, higher, base rate on the letter.  But the  base rate does not include the additional costs of endorsements to your policy that help to make your policy unique to your needs.  Perhaps you added towing coverage to your auto insurance policy or you have added guaranteed replacement cost coverage for your dwelling to your homeowners insurance policy.  When the consent to rate letter shows a new price for your policy that doesn’t include these other endorsements and the charges that go along with them then you might find that the bill you receive after you sign the letter is quite a bit higher than the estimate shown on the consent to rate form.  This has led to many cases of double sticker shock, once when you read the letter for the first time and yet another shock when you actually receive your updated, consent to rate renewal policy with rates higher than those estimated on the original letter.

The consent to rate letter is a work around procedure caused by the regulations that North Carolina requires for the insurance rating making process.  It can be confusing and downright misleading.  If you receive a consent to rate letter from your insurance company, I would advise that you call your insurance agent right away and try and understand why you are receiving this letter and what other options you may have for your insurance policy.  If you don’t get an answer that suits you, please call us and we will help you find a better solution.

At Clinard Insurance Group, we have many options available to our policyholders as well as to others who are faced with a consent to rate letter decision.  We still have options for writing homeowners insurance in NC without the auto insurance to support it.  Please feel free to call us, toll free, at 877-687-7557 and we will work to help you explore options that don’t include signing over a consent to rate letter to your insurance company. 

Is The Consent To Rate Letter Stealing Power From The NC Rate Bureau?

I remember a day, not so long ago when if we ever needed to have a client sign a consent to rate form, then we had to spend some time finding one to use.  This usually happened when someone had such a bad driving record or was considered such a poor risk that the insurance company needed to charge much more than the maximum rates allowed by law on their auto insurance policy in order to be comfortable writing the policy.  Today, with the market for NC homeowners insurance in such disarray, the consent to rate form has become much more common place than any claims forms ever would be.  This new trend has me thinking about how this overuse of a once rare loophole must leave the NC Rate Bureau feeling like they are losing their grip on the insurance rate rules in this beautiful state. 

Let me start with a warning to anyone who may have received a consent to rate form from their insurance company.  Don’t just sign and return this form without taking some time to check out your options.  This doesn’t mean that you should ignore this form completely, because doing that could leave you with no insurance at all.  But I want you to know that in most cases you have other options and that blindly signing this form will almost certainly mean that you will end up paying much more for your homeowners insurance policy than you need to.  To learn more about the consent to rate form and what it means for you and your insurance rates, please read my blog about that by clicking here.

Let’s begin with a bit of background about how insurance rates are created in NC, so that you can understand how this previously benign little form is starting to usurp the power of the NC rate bureau.  In the state of North Carolina, insurance rates are controlled by the NC rate bureau and approved or not approved by the NC Insurance Commissioner’s office.  The rate bureau establishes a maximum rate that can be charged for the different kinds of insurance policies sold in NC.  What usually happens with most insurance products is that the individual insurance companies then file rate credits to offer rates somewhere below this maximum rate.  In NC, insurance companies have been losing money on homeowners insurance policies for so long that the entire marketplace is under enormous pressure to stop the bleeding.  This has meant rate increases for home insurance in NC but many insurance companies are also using the consent to rate form to charge a much, much higher rate to a selected group of their customers while still offering the much lower rates to their more preferred clients.   The consent to rate form, once signed by a homeowner, simply gives the insurance company the power to charge more than the maximum rate allowed by the rate bureau for just that customer who signed the form.

When these forms were only occasionally used for a very small fraction of policy holders each year then it was being utilized in the manner in which the rate bureau intended.  The beauty of this form is that it allowed an insurance company the flexibility to adjust the rates enough to allow it to place insurance for special situations.   But now we are seeing insurance companies mailing consent to rate forms to large blocks of their homeowner customers.  Some may be sending the letter to as many as 25% of their home insurance customers in NC.  When that happens, and when a significant number of them sign the form and return it and then pay the increased rate, then in effect, we have created a new, more unregulated insurance rate making program that effectively makes an end run around the NC rate bureau.  I am openly wondering what the powers that be in the NC rate bureau feel about this technique and what it does to erode their power to make and enforce insurance rates in North Carolina. Are the ok with homeowners rates for some portion of our population turning into an unregulated wild west where the ignorant and the less informed pay as much as 300% more than they would have to with a clearer understanding of their options?

At Clinard Insurance Group, we insure thousands of families all across North Carolina.  We have options for those who are being nonrenewed or who have received consent to rate letters from their insurance companies.  If you receive a consent to rate letter from your insurance company, please don’t simply sign and return it.  Call us, we will help you explore your options in great detail, taking as much time as you need to fully understand your choices.  You don’t have to pay 2 or 3 times the maximum state allowed rate for your home insurance.  We want to help, just give us a call, toll free at 877-687-7557.

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 www.ClinardInsurance.com.