Florence Insurance Claims May Mean Extra Costs For Those NOT in Storm’s Path

RALEIGH – State and federal officials are surveying the devastation left behind by Hurricane Florence, and in some areas flood waters are still rising. Aid has been promised, communities have come together, and every North Carolinian will have Florence imprinted in the memories.

Next will come the insurance claims, with insurance adjusters scouring the ravaged communities and assessing the losses. That, experts warn, could put a strain on state and federal insurance plans.

“The N.C. Insurance Underwriting Association provides the Coastal Property Insurance Pool, also known as the Beach Plan. It’s a pool of private property insurers intended to provide storm coverage to property in beach or coastal areas and a market of last resort for people who can’t get insurance in the private market.

The plan has more than 190,000 policies with $71.7 billion in total exposure. Before Hurricane Florence made landfall, R.J. Lehmann, senior fellow and director of finance, insurance, and trade policy for the R Street Institute, said the storm could seriously stress the Beach Plan.

“The Beach Plan may not have the resources to pay,” Lehmann said. “If it doesn’t, what it has to do is issue bonds, and those bonds are paid off with assessments. Assessments are on every policy in the state whether you’re on the beach plan or not.””

After a natural disaster, it is universally popular to call for state and federal aid. It may be slow coming, but it is always welcome. The pressure of immediate needs seems to gloss over the uncomfortable scenario in which taxpayers far, far away from any such disaster are footing the bill for those that live in the storm’s path.

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But with property insurance plans, and special assessments as described by Lehmann, remove a few degrees of separation between insurance claimants and premium payers funding those claims.

Administrators seem to be keenly aware of this, and view such assessments asa very last resort.

“[…] taxpayers would still have to shoulder the cost if damage overwhelms plan reserves.

Gina Schwitzgebel, general manager of the Beach Plan, said the plan would have to exhaust several layers of finances, including at least $1.6 billion in retained earnings and $1 billion in member company assessments, before assessments on all homeowner policies are triggered.

“We have something called a catastrophe recovery charge, which is $326 million dollars. That is a one-time charge that could be assessed to policyholders,” Schwitzgebel said. “That is something we would prefer not to ever have to do is assess policyholders of the state. It really gets to be the point that it’s a phenomenal storm before it’s going to get into a policyholder type level of assessment.””

Already, property insurance rates are cringe-worthy for coastal homeowners. It is not that these homeowners don’t understand the risks, it’s that regulations force certain plan standards upon them that make for inflated costs. Much like health insurance coverage requirements needlessly inflate those premiums to cover risks that are not even possible for some policy holders.

Those regulations are not just the insurance industry either: environmental regulations majorly inflate costs in coastal development and restrict homeowners’ ability to mitigate storm effects themselves.

In addition to testing the state insurance plans, the federal flood insurance programs may be stretched as well.

“While the Beach Plan is probably safe for another year, the National Flood Insurance Plan is another story. Lehmann said Hurricane Florence could add to the roughly $20.5 billion debt the National Flood Insurance Plan owes taxpayers already.

There are more than 184,000 NFIP policies in North Carolina with $33.7 billion in exposure. While it’s unlikely Hurricane Florence will completely wipe out the NFIP’s claim paying capacity, Lehmann said, it is likely to add to the existing debt.

“To come close to burning through all of the program’s resources, Florence would have to approach the record $16.3 billion the NFIP paid out in 2005 for Hurricane Katrina,” Lehmann wrote.”

Hopefully the total claims for Florence end up lower than feared.

Believe it or not, there was a time when government regulations were few and people absorbed the risks of living on the coast or a river bank themselves. If that risk was too much, or the eventuality too costly, they moved.

Actually, one of the communities most affected by Florence has a history of doing just that. Down East, Carteret County is populated by hardy and resilient people in a strong of tiny communities that make a living from the water whose edge they live upon. More than a century ago, many of these people’s ancestors lived in a place called Diamond City on Shackleford Banks, near Cape Lookout.

Around the turn of the century a strong hurricane ravaged Diamond City, washed way[ the protective dunes, spoiled the fertile soil, and made a lot of residents reconsider their level of exposure to the sometimes violent sea.

They did not make insurance claims and rebuild, of course, and politicians did not go to taxpayers to make them whole again. No, they took their houses apart in sections and floated them over the sounds to relocate to higher, more protected sites. They moved to Harker’s Island, Marshallberg, Beaufort, and Morehead City among other places Down East.

That kind of individual responsibility is waning in the age of ‘socialized’ everything.

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