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Jan. 20--Monika F. Smith, a 49-year-old secretary who lives in Fayetteville, was flabbergasted recently when her homeowners insurance company asked her to agree to a new premium that would be 53 percent above the state-approved maximum rate.
"That's not a rate increase," Smith said of Allstate's proposal to raise her annual premium to $1,330, $464 above the rates approved by the state Insurance Department. "It's a greed increase."
That's a matter of opinion, but it's beyond dispute that Allstate has the legal right to seek such an increase on Smith's 1,450-square-foot home. Although state regulators set limits on premiums, the law allows insurers to charge rates above and beyond that maximum if a policyholder agrees by signing a "consent to rate" form.
"Since the premiums we are offering are higher than the (state-approved) rates," Allstate wrote in its letter to Smith, "we are notifying you in writing and need your consent to renew your policy through your signature."
Allstate further noted that, without Smith's consent, "we will not be able to renew your property policy and your coverage will end on 03/14/13."
Once a rarity, in recent years the volume of North Carolina homeowners receiving consent-to-rate requests has mushroomed, experts say.
The state Insurance Department only started tracking how many of the state's approximately 2.2 million policyholders agreed to rates above the state-approved maximum via the consent-to-rate process in 2010.
The data show that about 22 percent of policyholders outside the state's beach and coastal areas agreed to consent-to-rate requests in 2010, rising to about 26 percent in 2011. In coastal counties, the number was about 30 percent in 2010 and 25 percent in 2011; in beach areas, it was 40 percent both years. (The data do not include homeowners policies in beach and coastal areas that are provided by the state-created Beach Plan.)
Some companies go the consent-to-rate route "with more regularity than others," said Bob Mack, deputy commissioner of the Insurance Department's property and casualty division. "And there are still some companies out there that don't use it."
Function of 'inflexibility'
Industry insiders attribute the spread of such requests to the industry's inability to win approval for the rate increases they feel are necessary to make a profit.
"It's a function of the inflexibility of our pricing system in North Carolina, where it takes two or three years to get rates sorted out," said Stuart Powell, vice president of insurance operations and technical affairs for the Independent Insurance Agents of North Carolina.
"We believe ... that the rate we have been able to agree with the (Insurance Department) on is inadequate," said Ray Evans, director of the N.C. Rate Bureau, which represents insurers. "This suggests that companies are trying to overcome that inadequacy."
The last increase in homeowners insurance rates in North Carolina, which went into effect in May 2009, limited rate increases to an average of 4.05 percent. The N.C. Rate Bureau initially sought a much higher increase -- an average of 19.5 percent -- but agreed to the lower increase after negotiating with state regulators.
In October, the Rate Bureau filed for a new increase that would average 17.7 percent, ranging from a high of 30 percent in coastal counties to a low of 1.2 percent. The industry cited an uptick in claims per 100 homes, higher expenses per claim and a big jump in the cost of reinsurance -- which insurance companies buy to protect themselves from catastrophic losses -- as justification for the increase.
Companies pull back
But a parade of residents from the state's coastal counties decried the proposed increase as excessive and unfair at a public comment session held in Raleigh. The Insurance Department's experts subsequently determined the industry's request wasn't warranted.
That led to Insurance Commissioner Wayne Goodwin scheduling a public hearing on the request for June 3 in Raleigh. After the hearing, Goodwin will issue a ruling that can be appealed to the courts.
The lid on homeowners rates has prompted some insurers to pull back from the homeowners' insurance market. Some companies, including N.C. Farm Bureau and Allstate, stopped writing homeowners' policies in some instances unless customers also bought auto insurance policies from them.
Oyango Snell, regional government relations counsel for the Property Casualty Insurers Association of America, said in a statement that insurance companies need to collect sufficient premium dollars to pay off claims.
"North Carolina and its neighbors in recent years have seen significant damages from Hurricane Irene, Hurricane Sandy and multiple tornadoes," he said.
According to the association, North Carolina consumers paid an average of $743 for homeowners insurance in 2010, below the national average of $906 and less than surrounding states.
Allstate spokesman Daniel Groce said in an email that the company "sets prices based on the anticipated costs of providing insurance to each customer."
When the state-approved rate "does not adequately reflect a specific risk, Allstate may choose to seek a different rate that is in line with the associated risk," Groce continued. "In that event, we use a state approved Consent to Rate form as required by North Carolina law. In addition to the Consent to Rate form being approved by the state, the rates Allstate charges any customer in North Carolina are on file and approved by the Department of Insurance."
Wake Clinard, president of Clinard Insurance Group in Winston-Salem, said he has seen consent-to-rate requests in which insurers seek double the state-approved rates.
The net effect can be even higher, because many homeowners receive discounts that enable them to pay less than the state-approved rates. For example, Smith, the Fayetteville homeowner, is paying $853 rather than the state-approved maximum of $866.
Consent-to-rate requests can be much smaller, however. Mack, the regulator, said he recently received a consent-to-rate request on his homeowners policy that sought about 10 percent above the maximum.
Smith said she can't figure out why she was singled out for a consent-to-rate request, especially because she's had her homeowners policy with Allstate since 1991 and has never filed a claim.
Allstate's Groce said the company doesn't comment on individual policies.
Although insurers aren't required to tell policyholders why they are being asked to sign a consent-to-rate form, that's a deficiency that the Insurance Department would like to see addressed by state lawmakers.
"We'd like to see it more transparent," Mack said.
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