Mr. Chairman, Members of the General Assembly, Staff, Members of the general public, Ladies and Gentlemen:

Transcription

1 Remarks by Insurance Commissioner Wayne Goodwin LRC Committee on Property Insurance Rate Making March 21, 2012, 1 p.m. Mr. Chairman, Members of the General Assembly, Staff, Members of the general public, Ladies and Gentlemen: First of all, thank you for your work in understanding the issues in this area. During the last four years as Insurance Commissioner, I have stressed time and time again that the crisis in insurance in this state is not with car insurance. It's with homeowners insurance, particularly in the coastal and beach regions. My job, ultimately, is a balancing act: By law I am to protect consumers from excessive insurance rates, inadequate rates, and unfair discrimination; and I m also required to make sure that companies who choose to do business here have the opportunity to make a fair and reasonable profit, are solvent in order to pay claims, and are free from fraud. Consumers want to know that they re getting a fair insurance rate, particularly in the coastal areas of North Carolina The insurance industry wants to know it has the opportunity to make a fair and reasonable profit. We want more insurance companies to write policies here instead of withdrawing from the coastal market and forcing property 1

2 owners to go to the coastal wind pool or the excess and surplus lines market. But I often have to remind constituents that the government cannot force insurance companies to do business here. I can t ask you to pass a law requiring all homeowner s insurance companies who write in the state to write their fair share of homeowner s policies in the beach and coastal areas. There is a North Carolina Supreme court case that forbids that, AND these companies may just decide to stop doing business in North Carolina altogether. Together over the last several years, we have made strides to relieve some concerns. House Bill 1305 capped assessments, offered mitigation credits to homeowners, asked the Rate Bureau to further revise territories, and slowed rapid growth of the Beach Plan. But there s still work to do. I know you are about to enter into the short legislative session. I believe some of my recommendations could be considered and acted upon this year, and others could be worked on in the interim in preparation for consideration by the General Assembly for the 2013 long session. 2

3 My first set of recommendations involves the need for more transparency in property rate filings. When the Rate Bureau prepares a property rate filing, it uses a model that simulates more than 50,000 hurricanes doing damage in North Carolina. Do you know how many numbers we actually get to see from that model? 8. We only get to see the worst loss, the average loss, and a handful of other numbers. We are kept in the dark about wind speeds, hurricane paths, and how many years have more than one hurricane. We need this information on each and every one of the 50,000 storms when the filing is made or before a filing is made. We need transparency; having eight numbers is not good enough. The law should also be changed to require specific supporting data when the cost of reinsurance is included in rate calculations. We would like to see the actual amounts spent for hurricane reinsurance in North Carolina. That way it can be determined if the reinsurance costs are reasonable in relation to the line of business for which rates are being set. I also believe that part of transparency is giving the public a voice in the process, and I would support the General Assembly designating public comment periods before rate hearings, as I 3

4 have done voluntarily during my time as Insurance Commissioner. Second, I recommend that the Legislature give the Commissioner of Insurance the authority to select his own rates if the change requested by the industry is different than the change justified by evidence. Currently, the Insurance Commissioner can do that in auto insurance rate hearings. However, when it comes to homeowners insurance, the Commissioner is forced to either accept or reject the exact change requested by the Rate Bureau. In the recent dwelling fire rate case, the insurance companies filed for about a 40% average increase in wind premium for the coastal counties. I didn t approve of that so I was forced to give them nothing at all. Now some companies are threatening to reduce property writings on the coast. It shouldn t have to be one or the other. It s only fair that the Commissioner, relying on experts and based on the evidence, have the option to order rate changes other than exactly what was requested or zero change. If the General Assembly accepts this recommendation, it will help address some industry concerns about adequate rates and help provide consumers and the regulator with a fairer process. Third, I recommend that the Rate Bureau move forward with expanding the number of coastal territories so coastal 4

5 residents further inland may have lower rates than those homes on the sand, closer to the water. The number of rate levels along the coast was increased from two to five a couple years ago. I think having more than five rating territories may be an improvement. I think this is going to be a recommendation of this committee and I think it is a good one. I am prepared to work with the Rate Bureau to move forward on this as soon as possible. Fourth, I recommend that the Beach Plan and the companies work with the Department of Insurance to study a solution to address the possibility of multiple major storms in a year. I support and commend the Beach Plan s efforts to try to think of ways to do this other than through the purchase of reinsurance, so that the surplus may grow. I know that leaders within the Beach Plan a board comprised of both industry and public members - want to consider the issuance of tax exempt bonds. This and other ideas have merits, but also have intricate details involving multiple stakeholders and state agencies. The Department of Insurance and I will do all we can to provide technical support and feedback as ideas are studied. Finally, I d like to discuss a recommendation involving tax credits. Due to the current condition of the state budget, I realize this recommendation is not likely to come to fruition. 5

6 However, I d like to recommend that for any new full coverage policy including wind and hail a licensed insurer writes in the beach and coastal regions for the taxable year, the insurer be allowed to claim a non-refundable credit against the premium tax imposed for the policy. As it is in South Carolina, the tax credit could only be claimed once for a structure regardless of the number of policies written on the structure. This recommendation would help encourage companies to write more on the coast and discourage the growth of the residual market in the Beach Plan. I commend you for the work and effort you ve given these complicated and important issues. And, as I close, during this meeting and at other times you will have been presented reports, studies or recommendations that purport to be independent. I respectfully encourage you to ask questions about such claims, and who pays for them, and to determine what the intended or unintended consequences would be if such alleged proposals were put in place. Who actually benefits? Who is harmed? What are the probable results? My experts at the Department of Insurance I ask those questions, and we find that it is a very helpful and enlightening exercise and duty. Thank you for allowing me the time to share with you today. # # # 6