State Farm Leaving North Carolina Barrier Islands

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January 15, 2010 Friday 03:18 PM EST

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State Farm Leaving North Carolina Barrier Islands

Chad Hemenway

RALEIGH, N.C.

In a move to reduce exposure, State Farm said it will not renew about 1,600 policies on North Carolina's barrier islands beginning in May.

Company spokesman Russ Dubisky said the area east of the Intracoastal Waterway in North Carolina "presents unique geographic challenges" for the insurer and the decision to drop the policies "was made to manage catastrophic risk exposure and preserve our financial strength."

Dubisky said State Farm is encouraging its agents to get in touch with affected policyholders directly, as notices will begin to go out roughly two months before scheduled renewals. Actual nonrenewal dates will depend on the policy term. State Farm, the state's leading writer of homeowners multiperil insurance, according to BestLink, will continue to do business on the state's mainland, Dubisky said.

The Business Alliance for a Sound Economy, an organization of various trade associations and independent businesses, said in a statement that the decision by State Farm "is a step in the wrong direction and undermines the progress made during the last (legislative) session." The group said the policies being dropped by State Farm will likely be headed to the state's insurer of last resort, the Beach Plan.

In August, legislation meant to reform the Beach Plan was signed by the governor. The insurance industry said it was a step to stabilize the property insurance market. The plan was growing at a fast rate and faced a billion-dollar deficit if a large storm hit.

The measure, HB 1305, caps assessments on private insurers at $1 billion. Previously, there was no limit on the assessments. The law establishes a 10% surcharge on premiums per year if damages are more than what the Beach Plan has plus the $1 billion in assessments. To further strengthen its financial standing, the Beach Plan, or North Carolina Insurance Underwriting Association, will now be limited to writing homes valued $750,000 or less, down from $1.5 million. The plan's surpluses will be retained each year, not distributed back to member insurers (BestWire, Aug. 27, 2009).

North Carolina Department of Insurance spokesperson Kristin Milam said several hundred of the homes being dropped by State Farm already had wind coverage through the Beach Plan. She said it is "a safe assumption" that many of State Farm's nonrenewals would get as much coverage as they could from the last resort insurer. Some, she said, may hit the $750,000 threshold, at which point they would turn to the private market for the remainder of insurance.

In the meantime, a state appellate court is considering whether to freeze or lower homeowners insurance rates that went into effect last May. In April 2009, the North Carolina Superior Court dismissed a petition to stay statewide property insurance increases approved by the department of insurance. Rates went up about 4% on average statewide, but coastal counties saw increases in premiums of nearly 30%. Inland areas could see declines. Municipalities and counties joined several lawsuits challenging the rates (BestWire, March 16, 2009).

State Farm Group currently has a Best's Financial Strength Rating of A++ (Superior).

In 2008, the top five writers of homeowners multiperil insurance in North Carolina, according to BestLinke, were: State Farm Group, with an 18.9% market share; Nationwide Group, with 15.7%; North Carolina FB Insurance Group, with 13.0%; Allstate Insurance Group, with 9.9%; and Travelers Group, with 5.3%.

(By Chad Hemenway, associate editor, BestWeek: [email protected])

January 16, 2010

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