The New Political Football In North Carolina – Homeowners Insurance Rates

While the general public may not know it, anyone in the insurance business will tell you that the homeowners insurance market is in a state of turmoil.  Here’s why.  Whether you believe their crystal balls or not, most every insurance company that sells home insurance in this state has come to believe that they need higher rates in order to avoid losing money on those policies.  But the insurance companies  can’t simply raise their rates on their own because the rates that they can charge are regulated by the NC Insurance Commissioner.  The Insurance Commissioner is an elected position and it appears to me that our current commissioner must believe that raising homeowners insurance rates will jeopardize his political position and may even cost him his job at the next election.  When you put all of this together you have a volatile situation that can create problems for the insurance consumers here in North Carolina.

Recently I watched a Fox News story about this problem and I was struck by the man in the street interviews in that segment.  Fox News asked random strangers what they thought about the insurance companies needing higher rates.  To a person the same response was given by every person interviewed:  insurance companies are charging too much already and the insurance commissioner is doing the right thing by keeping rates low.  I don’t blame people for thinking this if they haven’t studied the problem, or if they haven’t thought through the ramifications of this kind of stance, but in truth, this kind of thinking is what gives the Insurance Commissioner his power and allows him to take the stand against rate increases that is creating so much misery in the homeowners insurance marketplace right now.  It’s really pretty simple.  If insurance companies can’t make a profit, then they will leave.  Those that choose to stay will have less competition and will have to find some other way to make a profit.  Right now their choices are to run an end run around the Commissioner to increase rates on a policy by policy basis, or take away or limit some of the protections currently included in the policy.  Much as we may wish it, we can’t squeeze water from a stone and if we continue to try and force insurance companies to lose money in this state we will see fewer and fewer choices for our home insurance in the future. 

Here’s a quick look at four trends that are happening in the NC homeowners insurance marketplace and the impacts that they are having on insurance consumers in NC.

The first trend is the bundling of home and auto insurance.  If you want to purchase homeowners insurance in NC, it is a strong possibility that you will have to bundle your auto insurance policy with that home policy or you will not be able to buy the home insurance.   Stand alone home insurance policies are called monoline home policies.  While 2 or 3 years ago, most insurance companies would happily write a monoline home policy, now  you would be hard pressed to find an insurance company that will do this for you.  The reason is simple.  Insurance companies can make a nice profit on your auto insurance but not on your home insurance.  Therefore, they will only write the losing policy (home), if they also get to write the winner (auto).  If you have both, this is not a huge problem although it does narrow your choices as a consumer.  But it is starting have a very negative impact on some senior citizens who have turned in their licenses and no longer drive and thus don’t have an auto policy.  Now they are losing their homeowners insurance and may have no way to get a new policy in place. 

Another trend that is becoming more and more common is the use of consent to rate forms in order to both cancel existing homeowners policies and to increase the rates on some homeowners as much as 250% or more.  This is an extremely inefficient way to increase rates as it is done on a policy by policy basis and is like trying to hammer a nail in with a sledge hammer.  For a more detailed understanding of why consent to rate is a problem for consumers and insurance companies alike, please read my blog on this topic by clicking here.  Oh, and if you receive a consent to rate form in the mail from your insurance company, please don’t just sign it and send it in without first consulting an insurance professional.  Give us a call at 877-687-7557 and we will help you understand your options.

The third trend illustrates how if insurance companies can’t get the rates they need to stay profitable, then they will start reducing the coverage.  We are now seeing most insurance companies increasing the minimum deductibles on all homeowners insurance policies that they write.  Long gone is the option for a $250 deductible and with some insurance companies you may not even be able to choose a $500 deductible option.  In addition, some insurance companies have also changed their deductible clause to double your deductible if you have a loss from wind or hail.  This change, and the next one I will mention shows you that the biggest loss problems that insurance companies have in this state come from wind and hail claims.

The last trend, which is still pretty rare but will probably be common on all policies in the next year, is the change in coverage on your policy for your roof from replacement cost protection to actual cash value protection  Insurance companies are now working on wording in their policies to make this change in the event of wind and hail claims for damages to your roof.   Right now, almost all policies will replace your damaged roof with a brand new one, even if your roof is almost completely worn out.  But in the future, this protection will be removed from your policy completely, or at best, you will have to pay an extra premium to get replacement cost protection for your roof added back to your policy.  Actual cash value protection means that when settling your roof damage claim, the insurance company will not pay you what it takes to replace your roof, but rather will pay you the replacement cost of your roof minus any depreciation for your current roof based on its age.  So, if you have a 20 year roof that is 19 years old, then you can expect to receive 5% of what it will take to put a new roof on your house after it has been damaged by wind or hail.  That could put a whole lot of homeowners in a difficult financial position.

The truth is that whether we like it or not, if insurance companies are unable to make a profit writing homeowners insurance in NC, then they will do one or more of three things.  Either quit and leave our state, or find ways to raise rates outside of the Insurance Commissioner’s control, or reduce the protections provided by the homeowners insurance policy.  All of these choices lead to unpleasant surprises for the consumer.  It is time for our Insurance Commission to stop playing politics with homeowners insurance in NC and let the free market operate in a way that will keep insurance options and choices open for all consumers.

At Clinard Insurance Group, located in Winston Salem, NC, we help advise thousands of families all across the state with their personal and business insurance needs.  We are dedicated to helping you find the best possible options for your home insurance, your auto insurance, your life insurance, and even your business insurance.  We would be happy to answer any questions you may have.  You can reach us by phone, toll free, at 877-687-7557.