Beyond the curtain of insurance rates

Editorial by Jacksonville Daily News, March 20, 2014.

Coastal North Carolina home­owners who have seen their insurance premiums skyrocket during the past decade or so deserve a better explanation as to how their insurance companies arrive at such high figures. A law that would pull back the veil a bit would be a welcome addition to the N.C. General Statutes.

We coastal dwellers understand that we have a greater risk of getting walloped by a hurricane than many of our inland neighbors. But we are certainly not alone in susceptibility to wind and hail damage from other sources, such as tornadoes and high-velocity thunderstorms, as we have seen in recent years. And even those hurricanes have had a tendency to do some big-ticket damage well inland over the years.

We also fail to understand how our risk of fire and theft is so much greater along the coast than inland. Are we really to believe that fire does more damage here, or that burglary and theft are so much greater in coastal North Carolina than in big inland cities?

Yet the base rate for those cities — which includes wind and hail coverage in with the basic policy — tend to be lower. And we coastal dwellers generally must have separate wind and hail coverage, many of us as part of a statewide high-risk insurance pool.

Last year the N.C. House voted 106-0 in favor of a bill that would take a closer look at the models used by insurers to request and set homeowners insurance rates. It didn’t budge in the Senate, however, stalling in the committee on insurance.

Let’s hope the senators allow it to proceed when the short session convenes in May.

The bill, sponsored by a Dare County representative, wouldn’t force insurers to reveal their trade secrets. But it would allow lawmakers and the public to know a little more about what goes into setting rates and why a particular region is seen as a higher risk, which in turn would mean higher rates.

Homeowners would certainly like to see what’s behind the curtain as actuaries calculate their premiums. Right now, the process is as mysterious as David Copperfield’s bag of tricks.

What would be most helpful is a look into the factors that lead to much higher premiums, and requiring insurers to justify their rate increases in language the average person can understand.

Along the coast we have been socked with double-digit increases in both base rates and separate wind and hail policies. Most of us would love to know exactly what models the insurers were using to calculate the risks.

Such openness, along with increased public input, can only lead to a better understanding of how premiums are set, and maybe some good ideas from consumers and policy makers on how to reduce risk and keep premiums under control.

A version of this editorial first appeared in the Wilmington Star-News, a Halifax Media Group newspaper.

 http://www.jdnews.com/opinion/our-opinion/behind-the-curtain-of-insurance-rates-1.294062?page=1