ALLCHOICE Insurance :: Blog

North Carolina home owners are facing challenges from numerous directions these days.  We all know the challenges that exist with the real estate market collapse, and the effect on home values.  Most North Carolinians should be some what familiar with the challenges with insuring their homes due to the North Carolina Beach Plan.  The latest challenge comes from a recent press release from the Department of Insurance which announces a Class Action Lawsuit brought against the state’s leading Home Insurance Provider, Nationwide Insurance.

Undoubtedly, you have seen the marketing from the leader in North Carolina Homeowner’s Insurance.  I believe it states something to the affect of them being “on your side”.  It seems that mantra is not necessarily true in North Carolina.  In the Department of Insurance’s press release, the class-action suit states that Nationwide underpaid policyholders by not including general contractor’s overhead and profit.  That means, the policyholders had to pay those costs out of their own pocket.

When you take the state of the economy, the problems caused by The Beach Plan, and the fact that North Carolina’s largest home insurance provider is settling a lawsuit where they did not pay their claims properly; North Carolinians should be very careful when it comes to choosing an insurance carrier.  The problem is, how do you go about choosing the right carrier?

The first issue that you must investigate is…given the problems insurance carriers face with the NC Beach Plan, which carriers are committed to providing home insurance in North Carolina.  Over the past 12-18 months, there have been numerous carriers that have decided to stop writing and even cancel their current Homeowner’s Insurance policies.  The most prominent of those carriers was Farmers Insurance.  While there are still plenty of options in North Carolina, many carriers are still considering whether to stop writing NEW homeowners policies, reduce the amount of NEW homeowners insurance, reduce their current homeowners insurance market, or completely leave the homeowners insurance market.  You should ask your current insurance agent, as well as other insurance agents, about the plans of their insurance carriers.  While you might not get honest answers from everyone you speak with, you should be able to read between the lines.

The second issue that you must investigate is the financial stability of the remaining insurance carriers.  You hopefully have widdled your potential carrier list down from the aforementioned investigation, now you have to see which insurance carriers are financially stable enough to earn your premium dollars.  If you pay attention to any financial news, you have heard about the numerous downgrades issued by firms like S&P and Moody’s.  Many of those downgrades have come in the insurance industry.  Granted, most of those downgrades dealt with carriers which deal in mostly life insurance, property and casualty firms were not immune.  Look for carriers with “A” ratings or better.  If possible, you want a carrier with a long track record of “A” ratings.

The final issue, which should not even be an issue, is the ability and probability of your insurance carrier to fulfill the obligations they have made to you.  I doubt that anyone could imagine a company like Nationwide not properly settling their insured’s claims, but evidently this is the case.  Unfortunately, there are not many places you can go to obtain information such as this.  Of course, there are web sites and BLOGs that talk about insurance carriers.  However, I have found most of the time these sites are administered by people who have been done wrong by a particular insurance carrier, thus the information may not be that objective.  My suggestions is to simply talk to your friends and family.  Ask around.  “Who is your insurance company?”  “Have you ever had a claim?”  “Were you satisfied with how your claim was handled?”

While we all want to save money whenever we can, when it comes to North Carolina’s Homeowners Insurance market, the carrier with the lowest price might not always be the best insurance carrier for you.

About the Author:  Jack Wingate is a Professional Insurance Advisor and Founder of ALLCHOICE Insurance in Greensboro, NC.  For more information about Jack Wingate, ALLCHOICE Insurance, or North Carolina Homeowners Insurance please visit: http://www.allchoiceinsurance.com

ALLCHOICE is pleased to announce the addition of Gene Martin to the ALLCHOICE Team.

Gene Martin started his Insurance Career in 2005 as Health Insurance Specialist, then decided to broaden his Insurance Offerings by joinging a Property & Casualty Carrier.  Gene has a strong focus on the Personal Lines Market (auto, home, health, life, & disability).  Gene joins ALLCHOICE in as an Insurance Advisor and will focus on marketing & servicing all lines of insurance.

Before entering the insurance industry, Gene spent 9 years as a teacher in both Louisiana & North Carolina.  In addition, Gene spent 11 years as a Commercial Real Estate Specialist before opening his own Accounting Firm.

To contact Gene, please visit http://www.allchoiceinsurance.com/Meet_ALLCHOICE/

Insurance was originally designed as a tool to reduce the financial loss exposure of one party by distributing the risk across a large number of similar risks.  The insured party transfers the risk to a 3rd party in exchange for a set price, or premium.  The greater the exposure to loss that exists, the greater the price to transfer the risk.  Insurance Companies use statistical data to determine the likelihood of a loss for a particular risk, then charge the appropriate premium for the risk.  This price is termed as the “True Cost of Insurance” for a particular risk.

Once the “True Cost of Insurance” is determined, the insurance companies must then take into consideration their individual risk appetite for a particular risk, market conditions, and competition.  If the insurance company determines that a particular risk, or risk class, could be profitable over a period of time, then they adjust their pricing according to the competition that exists for that type of risk.  Effectively taking the “True Cost of Insurance” and reducing that price so that they will be competitive within that market.

Now that we have discussed some of the mechanics of Insurance, we can better understand the problems of the North Carolina Beach Plan and how those problems will affect every homeowner in North Carolina.  The Beach Plan was created as a market of last resort for property in the coastal counties of North Carolina.  Over the years, this market of last resort has turned into the Market of BEST Resort.  The reason this has happened can be traced back to one of the basic principles of insurance, charging an appropriate price for a particular risk.

The North Carolina Beach Plan is essentially a government agency.  While the Beach Plan employs people with insurance backgrounds, that does not mean the agency is qualified to act as an Insurance Company.  Given these facts, you can understand that those in charge of this plan may not be the best people to determine things such as appropriate underwriting guideline, appropriate balance sheet management, and most importantly approriate risk pricing.  In a nutshell, the Beach Plan provides coverage that is too good at a premium that is far too cheap.

I challenge you to go to any “standard” insurance company and have them “price” any individual risk within the 18 coastal counties, then compare that premium to what the Beach Plan charges for the same risk.  You will see the Beach Plan is typically 100%-200% cheaper than a standard insurance company.  As a consumer who owns coastal property, that works out well for you right now.  However, if you step back and look at that price difference, you have to believe there is something wrong with the pricing (either on the insurance company’s part or on the Beach Plan’s part).  Considering that if you were to get pricing from 10 different insurance companies, the pricing from all the insurance companies would all be considerably higher than that of the Beach Plan, would it be wise to assume that all the insurance carriers were wrong?  Or would a better deduction be that the Beach Plan was wrong?

Whatever you personally think, the insurance companies are in the business of pricing risks.  It would be safe to assume that a company that is in the business of pricing risk is better suited to price risks better than a government agency.

As a consumer, you still may be thinking, “I am able to get a better deal using the Beach Plan, good for me!”.  That is true until you consider that the Beach Plan does not have to appropriate reinsurance or reserves to pay the claims associated with the property they insure.  To put that into perspective, insurance companies would be unable to legally do business in North Carolina if they did not have the proper reinsurance and reserves to pay all their claims.  So, as you can see, there is a double standard present.

To compound the issue, since the Beach Plan is not functionally solvent, the burden to pay the claims they can not, is now shifted to every insurance company that provides property insurance in North Carolina.  A company will be assessed for the Beach Plan’s shortfall according to the companies North Carolina Market Share.

So what does this mean to the consumer?  Right now, the insurance companies have no means to recoup the assessment(s) they would incur.  It is safe to assume that losing money is the last thing any company wants to do!  So insurance companies will start charging more premium to all North Carolina Homeowners.  That in itself is not enough since North Carolina sets a maximum rate for risks in North Carolina.  That means that insurance companies must reduce their exposure by increasing underwriting requirements and slowing or stopping market share growth.  Some companies will even be forced to cancel all of their North Carolina exposures.

With companies increasing underwriting guidelines, increasing premiums, reducing exposure, and/or withdrawing from North Carolina; North Carolina Insurance consumers are now faced with an AVAILIBILITY issue versus a PRICING issue.  That’s right, there is a chance that you will not be able to get insurance from a standard carrier!  If you are lucky enough to qualify for a standard homeowner’s insurance plan, you will pay substantially more now than you would have 6 months to 1 year ago.

About The Author:  Jack Wingate is a Professional Insurance Advisor and Founder of ALLCHOICE Insurance.  For more information about Jack Wingate, ALLCHOICE Insurance, or North Carolina Homeowner’s Insurance, please visit http://www.allchoiceinsurance.com