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State politicians work toward property insurance relief
By Shelia Watson
Contributing Writer
Several plans for insurance relief proposed recently by state politicians aim to alleviate the high cost of coastal property insurance and protect consumers against cancellation and non-renewal of policies.
However, professionals in the insurance industry are both welcoming and criticizing the proposed legislation.
In February, Sen. Glenn McConnell, R-Charleston, president pro tempore of the state Senate, introduced a bill to reduce excessive coastal insurance rates. The proposed South Carolina Insurance Accountability, Reorganization and Relief Act of 2007, bill S. 412, would convert the current Wind and Hail Association into the S.C. Hurricane Underwriting Association.
The new entity, designed to be tax-exempt, would be a public body of the state and would have the ability to issue bonds for which it could seek tax-exempt status.
The S.C. Hurricane Underwriting Association would expand the current territory of the wind pool, which is a strip of land and barrier islands to the east of U.S. Highway 17. The association would provide hurricane insurance coverage for the current area of the wind pool plus all areas within Beaufort, Berkeley, Charleston, Colleton, Dorchester, Georgetown, Horry and Jasper counties not presently included in the wind pool coverage.
McConnell, chairman of the Judiciary Council, said in a statement that the association would be funded by premiums from the policyholders, and the premiums would be based on actual expected costs of providing hurricane coverage that are actuarially sound.
“At first, this coverage may not be cheap, but it will reflect the actual risks faced in South Carolina,” he said.
In addition, the bill would require that the director of the state Department of Insurance be elected instead of appointed and would establish the South Carolina Hurricane Damage Mitigation Program within the Department of Insurance to help insured people benefit from upgrading their property to withstand hurricanes.
The bill also would provide that notice of a policy not being renewed be given at least 100 days prior to expiration of the policy, and, in the case of a non-renewal during hurricane season, which runs from June 1 to November 30, notice must be written and given at least 100 days prior to expiration or by June 1, whichever is earlier.
In March, McConnell proposed additional protections against arbitrary cancellation and non-renewal of insurance policies.
“By combining the concepts for extended notice and for the South Carolina Catastrophe Modeling Act, which I previously introduced with (several) co-sponsors … in S. 412, with these new provisions restricting when policies are cancelled or non-renewed and when deductibles may be increased, I believe homeowners who are experiencing sudden cancellations after years of patronizing a particular insurance company will receive the protections they deserve,” he said.
McConnell’s proposal is based on a Louisiana law that prevents insurance companies from canceling policies or raising the deductible if the policy has been in effect for at least three years.
The proposed legislation would forbid canceling, failing to renew or raising a deductible on a policy in effect for three years except in certain cases such as non-payment of premium.
A few weeks after McConnell’s proposals, Gov. Mark Sanford and Department of Insurance Director Scott Richardson announced legislation, also aimed at alleviating the high cost of coastal property insurance, which will be introduced in the House by Labor, Commerce and Industry Chairman Harry Cato, R-Greenville.
“South Carolina, along with other states on the East Coast and Gulf Coast, continues to face the twin problems of escalating premiums and fewer insurers,” Sanford said during the announcement. “I think that, unlike other states like Florida that acted in a knee-jerk fashion to these problems, we have to be incredibly deliberate in what we do. These solutions are aimed at what I believe is ultimately the key to addressing this problem, and that is finding ways to encourage, rather than discourage, insurers to write policies along the coast.”
The legislation would create a number of tax incentives aimed at directly impacting the cost to homeowners.
The legislation also would reform laws relating to the wind pool line to give clearer guidance on the circumstances under which that line can be moved. Using the current statute, Richardson modified the wind pool line as a step toward alleviating existing availability issues along the coast.
“What was proposed this week by the governor is a good first step,” said Frank Shepherd, president of the Independent Insurance Agents and Brokers of South Carolina trade association. “Nobody knows how much (assistance in reforming insurance) is enough and there are a lot of dynamics aimed at specific solutions. But they’re all designed to do the same thing, and that is to get more insurance companies writing to bring prices down.
“We agree with the governor’s market-based approach, but you can get too far over the line mandating or restricting price increases and start to set artificial levels that just don’t work. And that will start to compound the problem. Citizens and consumers are concerned about prices, but to get to a satisfactory price, you have to go through prudent steps.”
As for McConnell’s proposals, Shepherd cautioned that the senator’s plan may be too strict.
“The governor’s proposal for a notice of cancellation, we certainly support that. No problem there,” he said. “But when you get into not allowing any cancellations, that gets more into a mandate and that takes away the freedom of choice any business has.
“Businesses have the right to pick and choose how to get the customers, and certainly consumers have plenty of choices with insurance. I understand the intent of what the senator is trying to do, but insurance companies need to maintain the underwriting decisions they need to make to remain solvent in the marketplace.”
Larry W. Freudenberg, president of the Triest & Sholk Agency, is critical of plans proposed by both McConnell and Sanford.
“The McConnell suggestions are politically motivated,” he said. “He’s trying to rally the troops and is blaming the insurance industry for all the bad things. His suggestions don’t do anything to help the problem except make the public think he’s doing something.
“I think he’s a good senator, but his ideas are not constructive.”
The problem, Freudenberg said, is trying to force the issue on non-renewals.
“You can’t work with the insurance industry in a small state like South Carolina and boss the insurance companies around,” he said. “We’re only 2 percent of all property values insured, so insurance companies won’t lose much money if they pack their bags and leave South Carolina.”
Freudenberg was equally critical of Sanford’s plan.
“Most of the governor’s suggestions, those tax credits and incentives, are just for the rich,” he said. “To the ordinary person in an average home making an average living, the idea of getting tax credits by adding things to your home is a joke.
“What he’s doing is pandering to the rich people that live on the beach. He had nothing constructive to say. He agreed to extend territories for wind and hail to appease Myrtle Beach. That’s the only area that helps. In Charleston, it’ll just help Goat Island and a few areas, but not much area is extended on it.”
Freudenberg said what will work is a national catastrophe fund.
“Instead of our governor running around doing a dog-and-pony show, what he needs to do is fight this in Congress like Gov. (Charlie) Crist of Florida is doing,” he said.
Losses due to catastrophic hurricanes such as Katrina or Hugo, earthquakes, floods, tornadoes and even terrorism are national problems, Freudenberg explained, and they’re greater than any one state or the insurance companies can afford to bear the cost of.
“The chance of a catastrophic loss affects every American, and every American will pay either by insurance premiums, catastrophe fund premiums or taxes for these problems,” he said. “If we had a national catastrophe fund, it could cover catastrophic losses dues to any of these events.”
Legislating lower premiums will drive off the insurance industry, which the state cannot afford, Freudenberg said.
“The state of South Carolina cannot be the writer of all the insurance in the state. We don’t have enough money in this state to collect the premium dollars for it,” he said.
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