By Jeff Hampton

The Virginian-Pilot

Paul O'Neal owns a home in a flood zone in Waterlily, a Currituck County, N.C., community where he has to buy three kinds of insurance: for high water, for wind and for fire.

He is also an insurance salesman who is sick of high insurance rates in places like Waterlily.

The industry charges much higher rates in coastal counties, a policy O'Neal said is based on the wrong notion that storms tear up the coast more than they do inland counties.

Instead of projecting the most likely scenario, based on history, "they plan for the worst possible destruction," said O'Neal, a Currituck County commissioner.

With hurricane season here, a group of eastern counties called NC- 20 is continuing an effort to get beach home insurance rates lowered to match the rest of the state. Currituck is part of NC-20, which won a victory when this year's General Assembly passed a bill requiring public hearings on proposed rate increases, said Willo Kelly, president of the group.

Homeowners were hit with three rate increases between 2003 and 2009, and NC-20 expects another big one soon. Kelly is traveling eastern North Carolina telling officials and residents that coastal counties are getting a bad deal.

The average annual policy rate on a $150,000 home on the Dare, Currituck and Hyde Outer Banks is $2,122, according to a chart from the North Carolina Department of Insurance. A home of the same value in Charlotte would cost $499 to insure.

Storm losses in North Carolina from 2001 to 2005 reached $2.47 billion. Of that, 18 coastal counties accounted for $259 million (10 percent), while the other 82 counties accounted for the remaining $2.21 billion. Kelly points out that North Carolina has never had a Category 5 hurricane hit land and that many storms sweep inland to places like Raleigh and Charlotte.

"There's no rhyme nor reason for these rates," Kelly said. "This looks like politics."

But because of the risks, more and more insurance companies are shying away from homeowners coverage on the coast, said Kerry Hall, spokeswoman for the state Department of Insurance. Some companies even buy policies to back policies they're writing - a safety net known as reinsurance.

"The Department of Insurance has the dual role to maintain affordable homeowners insurance rates while also maintaining a viable, solvent homeowners insurance market," Hall wrote in an email. "This is a complicated and challenging task."

Rates have to match the risks, or there will be no companies willing to insure beach homes, Hall said.

She points out that one reason claims on the coast have not been as high as in the past is that fewer major storms than normal made landfall during that time.

Hall also pointed out one key consideration: "When hurricanes have hit the state, the coast accounts for significantly more losses" than inland areas.

Years ago, homeowners policies covered all the possible disasters, but as time passed and storms struck, North Carolina insurers separated fire, wind and flooding. Few companies are writing wind coverage on the coast, O'Neal said.

To cover wind damages, homeowners typically have to buy from what is known as a Beach Plan at the maximum rate, plus surcharges.

North Carolina is divided into territories for insurance purposes. The North Carolina Rate Bureau, which represents the insurance industry, requests rate changes from the insurance commissioner, an elected position, by territory. Beach homes get higher rates based on risk and loss history, Hall said.

In Virginia, individual insurance companies request rate increases. Homeowners policies typically include wind coverage even on the Virginia coast but may have a higher deductible, said Ken Schrad, spokesman for the Virginia State Corporation Commission, which oversees the Bureau of Insurance.

Averaged across the state, North Carolina is not among the top 10 states with the highest homeowners insurance rates. But the rates in the coastal counties alone would rank on that list.

Jeff Hampton, 252-338-0159,

jeff.hampton@pilotonline.com

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