NC Homeowners Insurance Rate Making – Is The Fox Running The Hen House?

The NC homeowners insurance market is in real turmoil.  Rate making for homeowners insurance rates, traditionally the bailiwick of regulators, is being undermined a long forgotten loophole.  This is creating a huge change in the way that insurance companies in NC are pricing their home insurance product.  If the regulators in this state don’t take some action soon, then this creeping process will undermine the rate making process completely and leave us with a sorry hybrid rate making system that means some homeowners will be paying far more than their share for their home insurance and it could create a large population of uninsured homes with the homeowners unaware of their lack of protection.

Homeowners insurance rates in North Carolina have long been regulated by the NC Rate Bureau and the NC Insurance Department.  This process has required insurance companies to file the rates for their products and then wait for them to be approved.  For many years now, the Rate Bureau has established the maximum rate levels that insurance companies could charge for home insurance.  This maximum rate level is called bureau rates.   During the time that home insurance was attractive to insurance companies, the rates that insurance companies filed were at deep discounts to the bureau rate, in some cases as much as 60% below bureau rates.  But in the past two years we have seen a sea change in the appetite for home insurance business from insurance companies operating in North Carolina.  Over the last decade, while they were bidding  down the rates in a competitive feeding frenzy for market share,  the climate seemed to change around them.  The heavy losses of 2011 in our state were a big wake up call.  And when a few large companies take action, it doesn’t take long for all the smaller companies to run scared and follow their lead. So, most home insurance companies in NC have switched their approach from one of seeking more new home insurance business to trying to find ways to get rid of the policies that they have.

A big part of the journey to restore profitability to NC homeowners insurance has led the insurance companies to try to find ways to charge higher rates on home insurance policies.  This strategy pretty quickly ran them up against bureau rates.    But there is a way around the Rate Bureau’s established maximum rate.  The law states that if the insurance company receives a signed form from the homeowner that gives them permission to charge rates higher than the Rate Bureau maximums, then rates can go as high as the insurance company wants to take them.  The form that homeowners can sign to give their insurance company the right to charge them rates above the NC Rate Bureau rates is called the consent to rate letter.

The consent to rate loophole was originally designed to give the insurance companies a way to charge a more appropriate rate to the rare situations where a homeowner has some inherent risk that makes them unattractive to insurance companies.  It is meant as a way to help homeowners with higher risk to be able to obtain some insurance, even if it is expensive.   It was meant to be used only rarely, to solve the one of a kind problems.    

The real problem now is that with our current rate structure in NC, the rates are just too low in the eyes of the insurance companies doing business here.  And the only choices that the insurance companies have are to either cancel policies or have their clients sign consent to rate letters.  They need higher rates for home insurance in our state to continue to write home insurance in our state.  But using the consent to rate letter to attain this goal is a bit like trying to open the battery cover on your cell phone using only a hammer.  In the process you destroy the phone.  The consent to rate letter is a clunky, unwieldy tool to increase rates.  With the current overuse of this technique, the consent to rate letter has just become a way to do an end run around the rate making regulatory power that the Rate Bureau is supposed to control.

So how does this work for the homeowner?  Well, if you are one of the unlucky ones selected by your insurance company to sign a consent to rate letter, then you will receive one with your homeowners insurance renewal bill.  If you sign this form, then you will be agreeing to a huge increase on your premium, one substantially higher than the maximum rates supposed to be allowed by the Rate Bureau.  On the other hand, if you don’t sign and return the consent to rate letter, then your home insurance policy will be cancelled by your insurance company.  So it is sort of an all or nothing approach, and even a bit random.  Some homeowners will escape completely; perhaps because they have never filed a claim or because their auto insurance policy is making enough money for the same insurance company to make up the difference.  Others will pay far more than our current regulatory system of rate making anticipates that they should pay.  This subdividing of the insurance marketplace for homeowners insurance will, over time, put great stress on the system.  In addition, there is the very real risk that many homeowners will not fully understand the consent to rate letter and may fail to return it.  They then will not receive a renewal bill and may only discover their lack of home insurance after a large loss has occurred.  And large, uninsured losses are not good for our economy or our society.

The real solution would probably be to have the Rate Bureau increase homeowner’s insurance rates, particularly the maximum rate, much more quickly than we have seen.  Their slow movement in this direction can be understood when you frame their choices in the light of an election year.  Now that the elections are behind us, I would like to see the Rate Bureau address this issue and take back control of the rate making process, or perhaps just scrap it completely and let insurance companies charge the prices that they want without requiring a consent to rate letter from the customer.  It is clear to me that the hybrid system that we are stuck in right now is not good for consumers or insurance companies.

If you find a consent to rate letter from your insurance company with your next renewal, I would advise that you not blindly sign and return it.  There may be other options available to you.  Here’s what you should do. First call your agent and find out exactly why you were on the list to receive a consent to rate letter.  Then ask if your agent has any other options for you that might allow you to buy your home insurance policy at a rate below bureau rates.  If you are still not satisfied, give us a call at 877-687-7557 and we will help you find a solution that works best for you.

At Clinard Insurance Group, located in Winston Salem, NC, we insure thousands of families all across North Carolina.  We will be happy to take your questions on your home or auto insurance and help you better understand just what your options are for the future with these policies.   We can help you with your auto insurance, your home insurance, your life insurance and even your business insurance.  Give us a call; you will be glad that you did.

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.

Teen Driver Insurance – Watch Out For The Bias Against Your 19 year old.

Most parents out there who have a teen driver are well aware of the additional costs on their auto insurance while their child slowly gains experience behind the wheel. In NC these extra charges go on for the first 3 years of driving and then suddenly are dropped completely from your policy. To understand exactly how North Carolina allows the insurance companies to add these inexperienced operator surcharges, click here. Most parents of course think that they are free and clear of these charges once their child reaches the 3 years of driving experience. And for the vast majority of them, this is true. But some companies have a hidden bias against the 19 year old driver and they find other ways to collect extra premium for them. Knowing the tell tale signs of these techniques can help you avoid these extra charges.

First of all, you have to have a clear understanding of the NC auto insurance marketplace and how it works vis-à-vis teen drivers. There are some companies out there that have recognized that they can make money on the teen driver family segment during the 3 year experience period. Why is this true when the risk seems so high? Well, of course they know that this is a time when otherwise stable insurance accounts go shopping due to the additional cost of the teen driver. And the surcharges that the state allows give them the extra cash they need to turn a profit. But these companies are also very shy of a 19 year old driver. They don’t believe, and rightly so I suppose, that on the day the teen has 3 years driving experience that that teen is suddenly as good of a driver as their parents. Yet the rate is the same as they can charge for the parents who may have been driving 20 years or more. For more general information about how auto insurance in NC works, visit the NC Dept of Insurance web site.

So more and more companies are suddenly seeing the newly experienced driver as a huge risk compared to the money that they can charge for that driver. So what do they do? Well the most common technique is to increase your rates, often to those above what is allowed by the NC Rate Bureau. But to do this, they must have your permission. So they will send you a consent to rate letter. If you get one of these, please do not sign it and return it. Call your agent first to understand what you are signing and agreeing to. For more information about consent to rate letters and what they mean for you, please read my blog about consent to rate letters by clicking here.

If you fail to sign and return a consent to rate letter, then the remaining option open to the insurance company would be to cancel your physical damages coverage, ie your comprehensive and collision insurance, and then to cede your policy to the NC Reinsurance Facility. If they do this, then you will see a large increase on your liability insurance rates and you may even see a reduction in coverage to go with it. At the same time you will lose your physical damages protection.

The take away from all of this is that you will do well to keep a close eye on your auto insurance policy rates as your child reaches the 3 year driving experience period to make sure that you are not treated as a sudden high risk from the standpoint of your insurance company.

At Clinard Insurance Group, in Winston Salem, NC, we help thousands of families with their auto insurance policy and we work hard to help our clients become informed insurance consumers. If we can help you at all with your auto insurance or even your home insurance, your life insurance or your business insurance, please feel free to call us, toll free, at 877-687-7557 or visit us on the web at www.ClinardInsurance.com.

The source information for this article can be found at www.InsuranceAnswerGuy.com.

The Consent To Rate Form - In North Carolina This Is A Big Red Flag

More and more insurance companies are sending out a consent to rate letter, also called a consent to rate form to their North Carolina Auto Insurance and North Carolina Homeowners Insurance policyholders. The letter may seem like harmless little form that you sign and return but it isn’t. In fact it should be a big red warning flag to you about your insurance company and your status with them. Alarm bells should be going off in your head and there are a few things you will want to understand before you sign anything.

To understand what a consent to rate letter is and how it works, you must first understand a little bit about how auto insurance and home insurance rates are established in North Carolina. You see, all rates for these policies have to be approved by the NC Insurance Commissioners office. In most all cases, the Insurance Commissioner sets the maximum rates allowed for a North Carolina auto insurance policy and a North Carolina home insurance policy. The various insurance companies then create their own many rate tiers for their policies by deviating, or reducing their rates to something below the maximum allowed rate which is often referred to as the state rate.

What a consent to rate letter does is ask you to give the insurance company permission to charge you rates on your policy that exceed the state maximums. When you sign and return this letter you are essentially giving your ok to be charged rates higher than those established by your insurance commissioner.

Why would the insurance company want to charge you rates above those allowed by the commissioner’s office? Well there are really only two reasons. One is a macro reason and the other is micro in nature. Let me explain.

The macro reason means that the company is doing this for either all or many of its clients. We are seeing this with the North Carolina Homeowners policies from some companies who have too much exposure to possible storm assessments as a result of the beach plan insurance crisis. To read my latest blog about that, please click here.

The micro reason would be that the insurance company has singled you out as a client that they find too risky to insure at their usual rates. Before they can accept you as a customer and issue your policy, they have to know that they can charge you more than the state maximum rates.

Either way, a consent to rate letter is bad news for you as a customer of that insurance company. It implies that either your company is having some difficulties or that you are a bad risk. The implications for you are that you may be seeking insurance from the wrong company. You may not be a good fit for that company for a whole host of reasons. With so many other insurance companies out there, all fighting for your business, your best course of action may be to seek insurance elsewhere.

Before you sign and return any consent to rate letter, you should get an informed second opinion. At Clinard Insurance Group in Winston Salem, NC, we work hard to make sure that our clients and friends are well informed insurance consumers. We can help you better understand what that consent to rate letter means for you. Call us, toll free at 877-687-7557 for any help you may need with your North Carolina auto insurance, home insurance, umbrella insurance or even life insurance. We can give you an informed second opinion on your insurance questions.

The source material for this article was drawn from information found at www.insuranceanswerguy.com.

North Carolina Homeowners: Watch Out For The Consent To Rate Letter

Several large insurance companies are now actively sending out consent to rate letters to their customers with homeowner insurance policies. This letter is bad news for anyone who gets one although the language in the letter might seem to make it sound fairly benign. But that’s like putting a tablespoon of sugar on rotten meat. Here’s some help for you in understanding why you might be receiving this letter and what it means for you.

To better understand what this letter is, you must first understand better why you are receiving it. In North Carolina, we have an insurance crisis that is getting worse each day. The problem is that the government run beach plan to insure property at the coast is under funded and when a big storm hits the North Carolina coast, there won’t be enough money to pay the claims. The way the current law is written, the beach plan will assess the insurance companies in an unlimited amount to recover these losses. This unlimited liability to the insurance companies has made them uncomfortable about writing homeowners insurance policies in NC and as a result they are finding ways to reduce the number of policies that they write, or ways to get more money in the door for the ones that they continue to insure. To read more about how this crisis click here. To learn how to protect yourself from it, click here.

The consent to rate letter will always request that you sign it at the bottom and return it to your insurance company. What you are agreeing to when you sign this letter, is that you are willing to pay rates on your homeowners insurance policy that are higher than the maximum rate that the state allows the insurance companies to charge for your policy. Currently, almost every company insuring homes in North Carolina will charge rates that are dramatically lower than the state maximum rate. In some cases the discount off of the state rate is as high as 50%. So you can see, if you sign and return this letter, you can expect a huge rate increase on your home insurance policy.

As an added insult, some of the companies sending out this letter are saying that they will only increase the rate by some small amount, say 3% or 5%. But this increase is over the state maximum rate, not the rate the homeowner is presently paying. This is deceptive and unfair in my opinion. Also, these letters will say that if you do not sign and return the letter, then the insurance company will not renew your policy.

So what should you do if you receive a consent to rate letter? First of all, I would call your agent and ask them why you received it and if there are any other options for you. If they cannot offer you any options, I would suggest you call an independent agent who has access to many different insurance companies to see if they can provide you with a quote. Any quotes below the state rate will save you money. If you are unsure where to turn or if you would like a second opinion, please feel free to call us, Clinard Insurance Group, toll free, at 877-687-7557 or visit our web site at www.ClinardInsurance.com. At Clinard Insurance Group we represent dozens of home insurance companies and none of them are currently sending out consent to rate letters.

The source information for this article was pulled from an article at www.insuranceanswerguy.com.