Summary:
- Insurance providers are asking for an 42% average home insurance rate hike statewide
- The insurance industry is facing rising costs globally due to climate change
- A lack of action, planning or recognition of the problem by lawmakers is making the problem worse
Last week, the North Carolina Commissioner of Insurance announced that the North Carolina Rate Bureau submitted filings asking for an average home insurance increase of 42% statewide. I have been a licensed insurance agent in NC for over fifteen years, and the amount of understandable public outrage we’ve seen is unlike any other rate filing in my career. Consumers have every right to be shocked when insurance companies are asking for increases as high as 99% (doubling!) in many coastal communities. I read through the entire rate filing, and the data matches what I’m seeing on the ground in my insurance agency.
The property insurance market globally is often referred to as a “hard” market. In the industry, a “hard” market translates into coverage and providers being difficult to come by for property insurance risk. Hard market conditions are being fueled by increasing climate change-related disasters occurring all around the world, including here in North Carolina. This particular rate filing provides claim data covering calendar years 2017-2021 as justification for the rate increase. More recent weather patterns suggest that storm severity was much worse in 2023.
We have fewer home insurance companies doing business in NC today than we did this time last year. When you have fewer companies doing business in a marketplace, competition declines and premiums rise. This is basic supply and demand, exactly as you learned about in an entry-level economics course. The insurance companies that remain in the market have severely tightened their underwriting standards, or even stopped taking on new customers altogether.
So why are there fewer companies doing business in North Carolina today than this time last year? It’s pretty simple: actuarial models used by the insurance industry for decades are failing to account for increased storm activity and the subsequent claim payouts needed to repair damages. A number of companies headquartered in Florida and Louisiana went insolvent because of this, and some of them also did business in our state. The companies that remain standing do not have the financial and underwriting capacity to take in everyone that needs home insurance coverage given the current hard market conditions. The worst possible outcome would be to pay premiums to a company only to find out after you filed a claim that the company doesn’t have the money to reimburse for the damage. But this is exactly what we’ve seen happen in Florida and Louisiana, and it could happen in North Carolina should we experience catastrophic damage.
More people are choosing to live in coastal states that are prone to hurricane wind damage and other severe storms. Our state is growing and that is increasing the demand for home insurance coverage in both the metro and coastal areas of NC. Yet when presented with an opportunity to possibly lower home insurance rates through modernization, state lawmakers decided to freeze building codes until 2031 with House Bill 488 (for which they overrode Governor Cooper’s veto). I routinely see shingles that need replacement inside of five years because of the frequency and severity of hail damage in the Raleigh area. Cheap roofing materials are no doubt contributing to the proposed rate increases for Wake County.
Most insurance companies are for-profit entities that have a fiduciary duty to their shareholders to return a profit. If there is no potential profit outcome in a state such as ours for home insurance, then they won’t risk shareholder assets on the mere hope that things might turn out better than expected. Even the mutual insurance companies – those owned by the policyholders and not shareholders – have struggled with this. Nationwide Insurance, the largest company by premium volume in the state and a mutual insurance company, recently announced plans not to renew over 10,000 policies in North Carolina.
Climate change is here, it’s real, and it’s not going away. Every time conservative politicians in Raleigh spout more fake outrage over ESG and the Green New Deal, voters should know that their inaction is going to cost us much more dearly down the road through future rate increases or even further insurance market contraction.
Justin King is an independent insurance agent in Raleigh and a Senior Fellow at Carolina Forward.
