“The North Carolina Beach Plan is one major hurricane away from financial disaster,” said Raymond Farmer, AIA assistant vice president, Southeast Region. “Today’s initial hearing by a legislative study committee is the first step in what we hope will be a thorough examination of North Carolina’s hurricane risk and the financial implications for both the private and residual markets.”
The North Carolina Insurance Underwriting Association, known as the Beach Plan, has experienced unprecedented growth in recent years in both its insured exposure and policy count throughout the 18-county coastal area it covers. This growth has called into question whether the Beach Plan’s rates are adequate to build up sufficient reserves in preparation for a major storm. Once those reserves plus the Beach Plan’s reinsurance is exhausted to pay claims, all private insurers writing property coverage in the state are assessed to cover any shortfall.
According to risk modeling firm AIR Worldwide, North Carolina has $133 billion in insured coastal exposure, representing 9 percent of the state’s total insured value. The Beach Plan’s insured exposure now exceeds over half of the state’s entire coastal exposure: $69.8 billion as of June, with over 153,000 policies in force, and a probable maximum loss of almost $4 billion, but with reserves and reinsurance totaling only $2.5 billion.
“After a major storm there would likely be significant assessments on private insurers, and the only option for recouping those assessments is through the ratemaking process,” said Farmer. “Depending on the size of the storm, that scenario could put the health of the private market at risk, not to mention that non-coastal residents will be subsidizing the coast. AIA will look to the Study Committee to ask the hard questions regarding the Beach Plan’s ability, under its current structure, to pay for a major storm, and what reforms the Legislature should consider to put it on a strong financial footing.”
The study committee will report its findings to the Legislature by the end of this year.