THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Monday, September 19, 1994 TAG: 9409190060
SECTION: LOCAL PAGE: B1 EDITION: NORTH CAROLINA
SOURCE: BY PAUL SOUTH, STAFF WRITER
DATELINE: MANTEO LENGTH: Long : 145 lines
A 1993 North Carolina Department of Insurance study revealed that some companies have verbally told agents that they do not wish to write policies for homeowners east of Interstate 95, including the Outer Banks.
According to the 1993 report, some agents informed the department that the availability of property and casualty insurance in coastal areas is ``in a state of flux.''
``These agents have reported that companies have tightened restrictions since the first of the year, and when attempting to attract appointments, they are verbally told the company does not wish to write anywhere from `within five miles of the ocean' to as far as `nothing east of Interstate 95,' '' the report said.
A 1988 directive, issued after a series of fires in the southeastern part of the state, prohibits such ``geographic redlining.''
``It has been brought to our attention that some companies are refusing to write property and casualty insurance on risks in certain geographic areas of North Carolina, particularly in the southeastern portion of the state., directive from state commissioner of insurance (General Statute) 58-54.4(7) declares this to be an unfair trade practice,'' the directive said.
Some insurance executives call the industry's refusal to provide coverage for wind damage to homeowners in northeastern North Carolina a form of geographic redlining.
In the wake of increasing complaints from agents who are unable to find coverage for their clients, the Department of Insurance has begun another study of the problem, known in the industry as shorelining.
``It's something we're concerned about,'' said Paul Mahoney, a spokesperson for the department. ``We're getting more and more complaints from agents who say they are unable to get coverage for their clients. They may be able to get coverage for things like liability, but unable to get coverage for fire and wind and things like that from the same carrier. In effect, they have to purchase coverage a la carte, and that leads to higher costs.''
Mahoney said the majority of complaints - largely from agents - are coming not from beachfront areas, but from counties farther inland.
``We're doing a more definitive study,'' Mahoney said. ``What we're hearing is coming mostly from agents who can't find companies to write policies.''
A Manteo insurance executive said that some firms are excluding wind coverage from their homeowners' extended coverage policies, forcing consumers to purchase coverage through what is known as the Beach Plan, which is regulated by the state but is actually an insurance cooperative owned by insurance carriers.
``The Beach Plan is a good thing for the development of our area. It has been for years,'' said Malcolm Fearing III, president of Outer Banks Insurance. ``But the direction this is going is not helping us on the coast.''
Fearing said that since 1992, there has been a 35 percent increase in the number of homes and businesses covered under the Beach Plan in Dare and Currituck Counties alone. The reason for the increase, he said, were the huge losses suffered by insurance companies in Hurricane Andrew and Hurricane Hugo. Nationally, there has been a 50 percent increase in the number of homeowners represented by a Beach Plan.
``What we're seeing is a withdrawal from the homeowners market,'' Fearing said. ``What is being allowed to happen is that companies are withdrawing from the coast. A lot of them simply don't write policies on the beach. A lot more don't write policies east of Interstate 95. This is illegal.''
Based on the 1990 census, almost 22 percent of North Carolina's population lives east of Interstate 95.
An advisory opinion issued by the North Carolina Attorney General's office in May found that insurance companies who refused to write policies on mobile homes in the coastal area, however, were not guilty of geographic discrimination.
Fearing, however, said the state should consider passing legislation similar to a New Jersey law passed earlier this year that prohibits insurance companies from refusing to write coverage for homeowners in coastal areas.
``They passed legislation that prohibits a carrier from restricting coverage on homeowners or commercial entities because they are located near wind-damage-prone areas or near coastal waters. Some people say that if we passed legislation like that, the insurance companies will pull out. My comment is, if banks weren't loaning money to certain segments of the population, we wouldn't want them to pull out, we'd throw them out.''
Fearing said the law would make the insurance market more competitive.
``I want to compete with several companies in an open marketplace. That way, the consumer is best served,'' he said.
Independent agent Fletcher Willey of Nags Head, a Beach Plan board member, said the problem is occurring in part because companies cannot afford re-insurance premiums. Re-insurance premiums are paid by insurance companies to cover the dollars they pay out for claims. The industry paid out $15.5 billion in claims for Hurricane Andrewand $4.2 billion for Hurricane Hugo.
Earlier this summer, the insurance industry petitioned the North Carolina Rate Bureau for a 47 percent increase in premiums. The request was denied, but the bureau granted a five percent increase.
Willey, however, said that legislation like the New Jersey law is not the solution.
``It's been ruled in the courts that it's confiscatory to require an insurance company to commit their surplus to a specific risk or a specific class of risk. That occurred in a previous administration when the insurance department required companies to write a certain percentage of medical malpractice insurance,'' he said. ``Requiring small companies to write a certain percentage of policies might force small companies to go out of business, leaving policy holders in trouble.''
``We're all concerned about the problem,'' Willey said. ``What needs to be found is a solution beneficial to the insurance companies and the consumer.''
Fearing, however, argues that risk is the nature of the beast in the insurance business.
``Are they going to stop writing fire protection in Oakland or northern California, or wind damage coverage from tornadoes in the Midwest? That's what insurance is for, to protect against that risk.''
No one understands the severity of the problem better than Arlene Rall of Kill Devil Hills. She received notice in July that her policy with the St. Paul insurance group on her family's retirement cottage had been canceled.
Since the cancellation, she has obtained coverage through another firm. However, the experience left her worried about the future.
``I'm afraid that this is the beginning of something,'' she said. ``What's going to happen next? Are they going to start canceling policies in the Mississippi River Valley because of flooding, or in the cities when they become too violent? Imagine the effect this is going to have on the local economy. Would you want to move down here to retire if you knew you couldn't get insurance for your home?'' Rall said.
The problem has not gone unnoticed in Washington. Congress is considering legislation related to industry practices in the inner city and in other areas.
Still, the coast of North Carolina is facing an insurance dilemma.
The last line of a letter Rall received from her agent following notice of cancellation from the St. Paul group spoke volumes about what shorelining means to the Outer Banks.
The letter said: ``It is not the happiest time for those who live and work on the coast.'' ILLUSTRATION: TOP 10 DISASTERS
Top 10 National Disasters in terms of insured loss.
Aug. 1992 - Hurricane Andrew, $15.5 billion.
Sept. 1989 - Hurricane Hugo, $4.2 billion.
Oct. 1991 - Oakland fire, $1.7 billion.
March 1993 - Blizzard, $1.6 billion.
Sept. 1992 - Hurricane Iniki, $1.6 billion.
Oct. 1989 - California earthquake, $960 million.
Dec. 1983 - Winter storm, $880 million.
April 1992 - Texas-Oklahoma tornadoes and floods, $760 million.
Sept. 1979 - Hurricane Frederick, $753 million.
Source: Property Claims Services Division of the American
Insurance Services Group Inc.
KEYWORDS: INSURANCE by CNB