Insurers hold cards

Don and I received an extortion letter last month. It came from our insuranceNancy Oates company. If we did not sign a letter authorizing the company to increase our homeowners’ insurance premium by as much as 250 percent, the company would not renew our coverage. And if our insurance lapsed, our lender could call in our mortgage.

If you haven’t received a ‘consent to rate’ letter already, you will get one soon. Usually, insurance renewal coincides with the anniversary of your original mortgage.

The N.C. Department of Insurance sets the rates that insurance companies can charge. Major insurance companies believe the rates are too low in North Carolina for them to make sufficient profit. The N.C. Rate Bureau, which represents insurance companies, negotiated with the NCDOI but couldn’t get the kind of increase it wanted. Insurance companies want to raise homeowners’ insurance premiums by 17.7 percent in Orange County. Increases in other counties range from 10 to 35 percent. Go to the NCDOI’s homepage, ncdoi.com, and click on “Proposed Rates by Geographic Territory” to check the requested increase for your county.

Because the two sides couldn’t agree on reasonable rates, a hearing is going on, for the first time since 1992. It should finish up this week, after which the N.C. commissioner of insurance, who serves as judge, will make a ruling on rates.

But just in case the insurance companies don’t get the increases they want, they are sending out extortion letters to lock in consumer permission to raise premiums by as much as 250 percent at any time during the course of the policy. It is legal for the companies to do this because consumers have the option of looking for an insurance company that won’t require signing the consent-to-rate form.

Good luck with that.

All of the major national insurance companies we called required us to sign the form.

I did a little research to find out how much insurance companies are hurting. As it turns out, they aren’t. State Farm had a 16 percent increase in net worth in 2013, the highest in its company’s 91-year history, due in part to a decline in claim costs. It rewarded its CEO with a 19 percent raise to nearly $11.5 million in compensation. The CEO makes another million or so a year by serving on other corporate boards.

Allstate’s profit tripled in 2012 and it gave its CEO a nearly 10 percent bump up, to $18.7 million in 2013. Its shareholder return was 38 percent. Nationwide doubled its CEO bonus in 2012, but I could find nothing on his pay in 2013. (And, yes, all three CEOs are white males.)

Regardless of the outcome of the hearing, expect that in Orange County your homeowners’ policy premium will increase by 17.7 percent. Keep an eye out for a letter from your insurance company. Tossing it in the recyclable bin unopened could start a cascade of unintended consequences.
– Nancy Oates

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20 Comments

  1. Deborah Fulghieri

     /  November 10, 2014

    Civil asset forfeiture, anyone?

    It makes sense for the stock price of insurance companies to rise, if the state departments of insurance are announcing these kinds of dramatic increases. Higher revenue=higher earnings per share.

    Can one hope that the State of North Carolina will look out for its citizens’ welfare?

  2. Mark Marcoplos

     /  November 11, 2014

    Exorbitant insurance rates are a major, overlooked factor in affordable housing discussions. From workman’s compensation to liability to builders risk to home insurance for the buyer, the insurance companies have a lock on a lot of money. It’s a little known fact that since 9-11, builders have been required to pay terrorist insurance. So you can rest easy if, during your next home remodeling project, an Al-Qaeda operative sneaks out from your shrubbery and blows up the stack of siding that was just delivered.

  3. Nancy

     /  November 11, 2014

    Thanks, Mark. Now I can rest easy.

    Speaking of building, check to make sure you are not over-insured. The replacement value of your house is not the property tax value or market value, which includes the land. If you had to rebuild your house, you already own the land. Check county GIS records to get an idea of the value of your house alone, separate from the land.

  4. many

     /  November 11, 2014

    Yep. My increase was relatively small, so I conclude I am probably over insured.

    Sadly, my insurance agent was completely useless in this matter as well. The consent letter did not have an end date and the insurance company would not add one, therefore they can increase my rate anytime they want. Travelers were very clear that If I did not sign it, they could and would drop me, despite having been a customer for +25 years.

    NC State law allows insurers to charge up to 250% more than the maximum rate set by the Insurance Commission.
    http://reports.oah.state.nc.us/ncac/title%2011%20-%20insurance/chapter%2010%20-%20property%20and%20casualty%20division/11%20ncac%2010%20.0602.pdf

    Insurance is one of those things that has questionable economics in a “free” market. It can lead to extortion if there is insufficient competition and apparent large scale collusion. My read of the ‘consent to rate’ statute is that it was intended for exceptions and not intended to apply to the entire market.

    Another item that should concern elected officials is the amount of money that leaves that state in the form of insurance premiums.

  5. bonnie hauser

     /  November 12, 2014

    Wayne Goodman is asking people to let his office know about letters. I insure with Ted Seagroves Nationwide. I have not received a letter (hmmm).

    here’s the report from WRAL on the loophole

    http://www.wral.com/-consent-to-rate-insurance-forms-worry-homeowners/13910595/

    and plan A – raise rates

    http://www.wral.com/hearing-scheduled-on-nc-homeowners-insurance-rates/14096061/

    Good point about land prices. Plus, OC homes are a lot more expensive.. After land is deducted, do insurers estimate that it will cost more to rebuild a house in Chapel Hill than Cary? If yes, Chapel Hill homeowners will pay even more for insurance.

  6. Bruce Springsteen

     /  November 12, 2014

    Although I don’t doubt insurance companies are being weasly in order to raise their rates as much as they can, blaming insurance costs for housing not being affordable seems to be bending over backwards to miss the important stuff. Insurance costs money everywhere and yet other areas are much more affordable than this area. Maybe that means that the things that are the main drivers of unaffordability are the things we do around here but that other places don’t do.

  7. Mark Marcoplos

     /  November 12, 2014

    OK Bruce (I still have a hard time typing someone’s alias because they won’t stand behind their posts) – we can collectively decide to bend over backwards to justify getting reamed by insurance corporations, but we can at least understand that they are part of the equation that drives up costs.

  8. Bruce Springsteen

     /  November 13, 2014

    Spare me the not standing behind your posts crack, Mark. We both know that’s just a tactic to get someone to reveal their identity so that you can lay down the hammer. It’s the way things work around here.

    I neither said nor implied that we should just give in to insurance companies, rather I’m just noting that in the grand scheme of things, the cost of insurance is a minor problem, not a major one.

  9. Mark Marcoplos

     /  November 13, 2014

    I don’t get the “lay down the hammer” part. I simply prefer to know who I am communicating with. And I believe that ideas have more integrity if they are not offered anonymously.

    As for insurance being a minor problem – the cost of housing is high because of a host of “minor problems”. They add up to real money.

  10. many

     /  November 13, 2014

    http://blog.coldwellbanker.com/hlr-2014/north-carolina/

    Apparently Chapel Hill is the most expensive (average) listing price. It would be interesting (to me) to know if average insurance costs are truly proportional to the housing cost. All things being equal, I posit the ISO rating of the property and fire district has a much bigger impact on proportional insurance costs.

    BTW Mark, We all know the anonymous poster rant and it does not hold water. People just use it in an attempt dismiss or discredit out of hand, otherwise relevant and salient comments they do not agree with. Get over it.

  11. Bonnie

     /  November 13, 2014

    Many – The towns all enjoy a low ISO rating once you get to 6, there’s no impact on rates. Therefore, property values have a huge impact on rates.

  12. Bruce Springsteen

     /  November 14, 2014

    You don’t care whether you know who you’re communicating with, Mark, you just want to shut down anyone that disagrees with you and finding out said persons identity is the first step. If I was agreeing with everything you say you wouldn’t care who I am.

    Do you really think people around here don’t know what’s going on? Anyone that gives opinions outside the narrow range endorsed by the local power structure are quickly bullied down and yet you think when you ask someone to reveal their identity it’s going to be interpreted to be because you just like to know who you’re talking to? Maybe by someone new and naive to the local political scene, which I once was, but not by anybody else.

    Dissent is simply not tolerated well around here. It’s that simple. Don’t worry, I’m no threat, I’m just a powerless person expressing an opinion now and then on a message board read by probably just a couple dozen people.

  13. Mark Marcoplos

     /  November 14, 2014

    Mr. Springsteen,

    I’ve shared many “opinions outside the narrow range endorsed by the local power structure”. I’ve gotten flak sometimes. That’s cool. It’s all in the spirit of energetic debate. To state the obvious, I’m not always right and I have often learned something from opposing viewpoints. If somebody doesn’t want to be a part of authentic, honest discussion (and be prepared to take a little heat), then they shouldn’t play the victim card if they participate. You can’t have it both ways. In regard to “powerlessness”, if you use an alias you are voluntarily giving up power.

  14. many

     /  November 15, 2014

    Bonnie, There is a major impact below ISO 6 on rates for business. Presumably many affordable housing units are businesses and insurance and taxes increases are passed along to tenants.

    Once again Mark makes the spurious connection between , authentic, honest discussion and anonymity. As certain a logical fallacy as an ad hominem attack.

  15. Mark Marcoplos

     /  November 16, 2014

    So would community discussions have more or less value if no-one actually identified themselves?

  16. Bruce Springsteen

     /  November 16, 2014

    Around here, more.

  17. many

     /  November 16, 2014

    Why is “value” based on identification?

  18. Mark Marcoplos

     /  November 20, 2014

    “This is too starved an argument for my sword.”
    Anonymous

  19. I am a State Farm agent here in Chapel Hill, NC.
    A few things:
    1) A national company bases decisions on profitability. When some stores/ states/ locations are not profitable, first rates are increased, second stricture underwriting for new business and reunderwriting existing business are enacted, third, deductible increases (minimum $500 to $1000) are exercised.
    If the company still is losing money in some areas although profitable in others, they have four options in NC under current system.
    1- continue losing money in that location
    2 – increase premiums
    3- stop writing new business & non-renew existing sub-standard business
    4- have Consent to Rate form signed for amount needed to reach needed premium.

    I can’t speak to other companies however I can tell you that State Farm enacted CTR renewals in 96 counties from 2004 to 2014. The last four counties, Chapel Hill included, were implemented beginning with 8/1/14 for all homeowner’s policies. Why?

    By having this form signed, we can then adjust our rates according to the risk and actuarial data. I can also say that in all 96 counties, the discount for having auto insurance is 25% at the following year’s renewal for 84 counties and 10% for other 12 counties that just went through prior to our counties.

    Also, there is a sliding scale based on how long you have been insured with State Farm that allows an additional claims-free discount so if with State Farm eight or more years, there is now a claims free discount.

    State Farm does not need the rate increase of $1/year on the form that is being sent before policy will be renewed on many people.

    They have found the longer someone is insured with State Farm, the more desirable the discounts should be as well as any increases based on non-weather related claims and that homeowners, in general, who also insure their autos with State Farm are more desirable, in general, thus the discounts at the following year’s renewal will be somewhere from 10% to 31% off the rate for the policy period you are signing.

    On the flip side, there will be a premium increase for non-weather related claims (no increase for hail/wind/ice/lightning/hurricane/tornado/) and that increase is graduated based on years with State Farm. Example: 2 non-weather related claims for someone with the company 9+ years is 30% increase (which is offset by the large home-auto discount) whereas someone with State Farm for 0-2 years with 2 claims is 50%. The most any person would be charged over is 70% based on four claims however in my 21 years as an agent, I have only had one client have more than 2 non-weather related claims within a three year period and that particular person had maintenance issues that he continued to ignore and had the same claim several times.

    I have insureds in Asheville, Burlington, Alamance, Mount Airy, Greenville, and other areas. They were all very happy both at their one year renewal and again at their three year renewal.

    Some companies only make you sign the CTR if there are things in their review of credit and other risk factors.

    State Farm made the decision across the board. Rather than continuing to have rates increase for everyone, those who are claims free will enjoy reduction and those also with auto will enjoy a significant reduction that will bring policy premiums back to what they were 3 to 4 years ago in this area .

    I also want to be very clear that NC is the last remaining state that has rate setting handled by a “rate bureau” who submits to the state’s insurance commissioner for approval.

    The writing on the wall is that NC will go the way of FL if there wasn’t this option available to bypass.

    As far as charging 250% above the amount approved by state, I don’t know anyone that would go somewhere, attempt to purchase something and be told it is $1 more and only way to sign is if you acknowledge that the next time you come in to buy, that the premium would be 250% more. I would just shop elsewhere to see if other stores were charging such a huge surprus.

    i scanned above comments and some referencing rate changes because of protection classes. I could help explain that as well but will be brief in stating that only eight states still have this type of requirement for rating. Fires are not our first or even second most expensive type of claims and all 8 states would be elated if we didn’t have to charge premiums based on it. Also, our questions on applications are no longer so that agents can figure what class a home is in but we were required to purchase software that automatically determines the protection class based on latest NC Fire Marshall’s protection class assignments (a whole other beast).

    also one other thing with State Farm and several other insurers… there is a Utilities Discount (our name – other companies may call it New Home Discount) that you receive if your home was built within the last 6 years. If it is new the year you buy it, then it is 18%. It drops by 3% per year until it falls off at end of sixth year.

    Also homes that have guaranteed replacement cost endorsements also have a type of “inflation index” – based on a national factor however since 2005, I have been diligent in making sure our initial estimate is accurate with as much detail as possible so that all I have to do each year is press one button to recalculate the local rate based on previous six quarters of building materials and labor costs and if it is lower than the national factor, then I let my clients know so that we can save them money while still guaranteeing the replacement of their homes.

    Finally if you have a monitoring alarm system that goes to a central station, then there is currently a 9% discount up to $75/year so make sure you let your agent know. Once homes go through this first year in which homeowners are charged $1 over the allowed rate, that discount won’t have the $75 cap anymore and will be a true 9% (5% if only monitors for burglary but 9% if monitors for burglary and fire).

    Go Heels!
    Michelle
    UNC – Class of 89

  20. many

     /  March 22, 2015

    Michelle,

    Thank you for your explanation of insurance.

    Beside the natural cynicism insurance companies suffer from due to bad fiscal decision, and exorbitant executive salaries and bonuses, some people outside of the towns are struggling with the reasoning behind the statewide jump in insurance rates based on distance from their fire station.

    The truth is that the risk has not increased. Nothing has moved, departments respond as they always have, people are not less careful. The only difference is that the distance from the primary fire station is now being calculated as the determining factor rather than the distance from the closest station.

    Because Orange county has four department mutual aid, the closest four departments will all respond to a fire. In fact, mutual aid agreements have improved over the past 3-4 years. If anything replacement costs have fallen, not increased. In reality, the risk in Orange County is recently lower for the insurance companies not higher.

    The feeling therefore is that this is predatory behavior by the insurance companies and is an attempt to recover from past bad investment decisions leading up to the 2009 meltdown. No one really believes these rate increases reflect an increased risk.

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