For Immediate Release: February 21, 2011
Goodwin Calls for Public Hearing on Dwelling Property Rate Request
Department of Insurance's initial review of the filing raises concerns that the requested rate increase is not justified
RALEIGH -- Insurance Commissioner Wayne Goodwin today signed a notice of hearing in the dwelling fire and extended coverage rate case, in which the North Carolina Rate Bureau -- the independent organization that represents all North Carolina property insurance companies -- requested an overall statewide average increase of 20.9 percent for dwelling property policies. The public hearing is scheduled to begin on June 21, 2011.
Commissioner Goodwin will serve as hearing officer but will withhold any comment on the filing, as he is required by law to remain unbiased. During the hearing, Commissioner Goodwin will hear from experts from the Department of Insurance and the Rate Bureau and decide what rate change, if any, is warranted.*
The Department of Insurance's role is to represent the interests of the public. DOI has retained independent, experienced experts who will testify during the hearing. After initial review of the filing, Department experts believe the requested rate increase is not justified based on the data submitted. The following concerns, among others, may be raised at the hearing:
- Old data: In the ratemaking process, data typically runs two years behind the date of the rate filing. The filing is based is from 2007; however, 2008 and 2009 data was available at the time this filing was compiled.
- Risk factors: The filing includes various risk factors used to calculate the indicated rate changes. The Rate Bureau claims these factors (such as the net cost of reinsurance and compensation for assessment risk) are a necessary cost of doing business in North Carolina. The concern is that the factors do not appear to be justified and result in an increase in rates.
- Profit methodology: The Rate Bureau uses a methodology that is not allowed in North Carolina and has been successfully challenged in the 2001 auto insurance case, which was decided by the N.C. Supreme Court. This methodology results in excessive profit factors of 9.5 percent.
- Deviations: The Rate Bureau includes a factor for deviations (discounts that some insurers give some of their policyholders) in the filing that, in effect, charges discounts back to consumers. The inclusion of a specific factor for deviations has been previously disallowed numerous times in auto filings litigated in the N.C. Supreme Court.
- Hurricane model: The hurricane losses for extended coverage are derived using a hurricane model that does not appear to be adequately documented or justified.
After the Department of Insurance received the filing on Jan. 4, Commissioner Goodwin ordered a public comment period from Jan. 4-31 as a way to increase transparency and engage the general public in the ratemaking process. Staff from the Department of Insurance and the Rate Bureau had access to all comments received in the allotted time period. However, due to his statutory obligation to remain impartial as the hearing officer, Commissioner Goodwin is not allowed to personally receive public comments and, therefore, could not attend the public comment session held Jan. 24.
Dwelling fire policies are different from traditional homeowners insurance policies in that they offer fewer coverage options and are sold to properties that would not qualify for a standard homeowners policy. Dwelling fire policies are offered to non-owner occupied residences including rental properties, investment properties and other properties that are not occupied full-time by the property owner. A dwelling fire policy does not typically include liability coverage; extended coverages would generally include coverage for damage to the physical dwelling due to wind, hail, fire, smoke, riot, civil commotion, and aircraft and vehicle damage.
The filing is available for public review by going to the Department's Web site
and entering the Serff Tracking Number
*If the Rate Bureau wishes to appeal his decision, it can do so through the court system, and companies can raise rates while awaiting an appeals decision. The difference in the ordered rate and the implemented rate must be held in escrow. If the Rate Bureau loses its appeal, the escrowed money must be refunded to policyholders who paid too much.