Courtesy of the Insurance Federation of North Carolina, here are some commonly perceived myths about homeowners insurance in North Carolina, as well as the facts to dispel those myths.
MYTH: North Carolina coastal homeowners pay among the highest insurance rates in the country.
FACT: North Carolina’s average annual coastal homeowners insurance rate is the lowest in coastal states from North Carolina to Texas. [Source: Property Insurance Plans Service Office (PIPSO)]
MYTH: North Carolina homeowners insurance companies are highly profitable.
FACT: Property insurance requires a long-term investment by insurers, with profits needed in most years to offset the inevitable catastrophic losses. Over the last 25 years, North Carolina’s homeowners insurers have experienced a negative cumulative return on net worth (-2.3%). [Source: National Association of Insurance Commissioners (NAIC)]
MYTH: Current “consent to rate” rules don’t adequately protect the consumer.
FACT: Consumers always have the freedom to evaluate their options and select the best combination of coverage, service and price for their individual needs.
Consent to rate is a transparent and necessary byproduct of North Carolina’s unique regulatory system, which has been in effect for over 35 years. Unlike every other state in the country, North Carolina’s rates are set using a process that collectively sets AVERAGE RATES through the Rate Bureau.
Since the Rate Bureau’s average rates ultimately serve as the maximum rate for each consumer, rating flexibility is necessary to ensure market availability and achieve adequate rates for above average risks. State law permits insurance companies to charge higher than average rates for some lines of insurance, provided the consumer consents to the higher rate.
MYTH: North Carolina has a low risk of hurricane damage.
FACT: Since 1960, three of the most hurricane-prone counties in the country are in North Carolina (Carteret, Dare and Hyde). The state has more than $163 billion in insured values along its coast.
In addition to population growth, the average claim severity has increased more than 155% over the past 15 years. [Source: U.S. Census Bureau; AIR Worldwide (AIR) – a respected provider of risk modeling software and consulting services used throughout the country; Fast Track Monitoring System]
MYTH: Catastrophe models are used by insurance companies to justify rate increases.
FACT: Computer simulated models help provide loss predictability by combining historical losses with current demographic, building, scientific and financial data to project future losses for a certain geographic area.
Catastrophe models do not calculate rates. They are simply one component that helps insurers predict and evaluate probable losses for particular concentrations of risks. Adequate rates are essential to sustaining a viable insurance market in North Carolina. [Sources: NAIC, U.S. Census Bureau, AIR]