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Originally published: 2013-03-08 15:13:27
Last modified: 2013-03-08 15:13:27

Homeowners insurance rates to climb

Watauga County homeowners will see insurance rates rise by about 7.7 percent July 1 following a statewide rate settlement signed Tuesday.

Despite the rising costs, western North Carolina residents will still enjoy the lowest rates in the state.

The settlement follows months of review and negotiations between the N.C. Department of Insurance and the N.C. Rate Bureau, which represents insurance providers operating in the state.

In October 2012, the Rate Bureau requested a rate increase that averaged 17.7 percent statewide. In Watauga County and western North Carolina, the bureau sought a 13.7 percent increase.

"Homeowners insurance is a very complex issue," said Wayne Goodwin, who was re-elected as state insurance commissioner last year. "We face a great challenge in making sure that it is not only affordable, but available, to consumers across the state. I feel this settlement helps strike that balance, and I am pleased that the increase will be significantly smaller than what insurers originally requested."

The settlement outlines more modest increases averaging 7 percent statewide and 7.7 percent in Watauga and surrounding counties. Some coastal counties will see increases as high as 19.8 percent.

"If you look at what people pay for electricity or gas or other utilities -- or gasoline, for that matter -- these are pretty small numbers for most people in an average, normal-sized home," said Ray Evans, general manager of the N.C. Rate Bureau.

Evans said he was reasonably pleased with the settlement but emphasized that the original proposed increases were based on actual calculated needs. As a result, insurers will continue working to increase rates until they reach the calculated levels.

"We think it doesn't go away, and we're just postponing some inevitability," he said.

What the Rate Bureau actually seeks is a change in the base rate, which is not a dollar amount but a numerical factor. When an insurance agent calculates the premium, he takes that base rate and applies other factors unique to each homeowner, such as the value of the home, how much coverage is needed, the fire department protection class and other factors.

Insurance companies also can offer discounts, so not all local homeowners will see an exactly 7.7 percent increase.

Each time the Rate Bureau files for an increase in the base rate, it triggers a lengthy review process by the Department of Insurance. During that review, Goodwin and staff determined that some increases were justified, said department spokeswoman Kerry Hall.

One of the biggest factors in the increase was the rising cost of reinsurance, which insurance companies purchase to protect themselves in case of a catastrophe that results in abundant claims, Hall said. Reinsurance, typically provided by international companies, is not cost-regulated and has skyrocketed due to worldwide natural disasters, she said.

If an agreement had not been reached, the process would have progressed to a hearing June 3.

"It can be a very long and costly process ... so getting both sides of the table to agree on something they felt was fair for both sides was good," Hall said.

The negotiated increase saves policy-holders $237 million from what insurers requested, according to the Department of Insurance. While state residents are not required by law to carry homeowners insurance, most banks will require it for mortgage-holders.

Since 2000, the homeowner's insurance rate has risen four times: 5 percent in 2002, 2.2 percent in 2005, 5.4 percent in 2007 and 4.1 percent in 2009.

Unlike automobile insurance, there is no set timeline for when the Rate Bureau must file to change the homeowners insurance rates. Evans said he expects the next filing to occur in summer 2014.

"We're getting much closer to the right answer, which is being able to provide a product to everybody at a price that is, for the long haul, able to pay for the resources that go into providing that product," he said.