From SamWalkerOBXNews.com

As owners of vacation rentals and second homes sort through another proposed increase in dwelling insurance rates, the North Carolina Rate Bureau says a combination of inflation, rising construction costs, market contraction and global reinsurance pressures continue to reshape the state’s property-insurance landscape.

Just a year after a settlement went into effect between state regulators and representatives of the insurance industry on an increase in dwelling policy rates, another request has been filed for coverage of rental properties that would top 70% over two years on the Outer Banks.

The Rate Bureau, which represents companies that underwrite policies in North Carolina, is seeking a statewide average total increase of 68.3% in dwelling insurance rates by 2027.

In June 2024, a settlement between state Insurance Commissioner Mike Causey and the Rate Bureau went into effect on a dwelling policy increase that averaged 8% statewide, after the industry initially asked for a 50.6% increase.

Under the dwelling proposal filed October 30, rates would rise in two stages: a statewide average of 28.5% on July 1, 2026, followed by 30.9% on July 1, 2027.

In Territory 110, covering the Outer Banks from Carova Beach to Ocracoke, the request asks for an increase of around 18% in 2026 and an estimated 46% in 2027.

For mainland Currituck and Dare counties, Territory 130, an increase of around 26.9% in 2026 and an additional 38% in 2027 is requested.

Leaders in the real estate industry and local government are calling the request “excessive and unfairly discriminatory”.

Dwelling policies generally cover rental properties owned by landlords as well as vacation homes, as opposed to primary homes that the owner lives in.

Primary homes are covered by homeowners’ policies, which saw base rate increases that began earlier this year, and will rise again next June.

To better explain the filing, its methodology and the conditions driving it, the Rate Bureau’s Chief Operating Officer Jarred Chappell sat down for an extended interview to walk through the data, the process and the outlook for the years ahead.

What exactly does the North Carolina Rate Bureau do, and how does it differ from other states’ regulatory systems?

Chappell said the Bureau is a nonprofit entity established by statute and charged with proposing rates, rules and forms for property, auto and workers’ compensation insurance in North Carolina.

“The North Carolina Rate Bureau is a nonprofit entity that was established by statute, I believe in 1977, and our core responsibility is to work on behalf of our member companies to propose rates, rules and forms for the insurance industry to use in the state,” Chappell said.

Unlike most other states, North Carolina uses a centralized system rather than carrier-by-carrier filings.

“In other states, the individual insurance companies make proposals directly to the Department of Insurance,” Chappell said. “In North Carolina, the Department of Insurance really just has to work with one entity on those lines and approve the standard rates, rules and forms for all insurance companies to use.”

How does the Bureau see itself — as an advocate for insurance companies or something else?

“It’s more of a mediary,” Chappell said. “Everything we do is in the statute. We don’t step outside that to make proposals for new ways of doing things. We work at the direction of the insurance companies, but we’re not a lobbying arm.”

Bureau governance includes industry representation and two public members appointed by the governor.

How has North Carolina’s property-insurance environment changed over the last 20 years?

Chappell said cost drivers have accelerated sharply.

“There’s always been an uptick in indications, but it’s accelerated recently,” he said. “Property values are going up. Inflation has skyrocketed. It costs a lot more to fix a house than it used to, and that’s what the insurance companies are paying for.”

Rapid population growth and higher density add exposure, he said, particularly in a hurricane-prone state.

“You add all that together, and the indications on property insurance keep going up.”

North Carolina is geographically diverse. Does that make the process harder?

Chappell said the statewide variation is built directly into rating territories.

“I don’t know that it makes it more difficult,” he said. “It’s part of the job. We’ve got the state broken down pretty well into different territories that reflect exposures. Obviously, the exposures where you are are very different than they are up in Asheville.”

The coast, he said, requires finer distinctions because losses differ dramatically based on proximity to the ocean.

How are territory boundaries drawn?

“It’s really based on exposure,” Chappell said. “We’re trying to find where people experience the same types and frequency of losses over time.”

In western and central counties, territories generally follow county lines. On the coast, the line shifts to account for distance from the shoreline.

Many Outer Banks homes are covered by dwelling policies because they’re second homes or rentals. Does the density of non-primary homes affect rate filings?

Chappell said the filing evaluates exposure, not whether a home is owner-occupied.

“When we look at a filing, we’re looking specifically at homeowners or specifically at dwellings in a particular area,” he said. “It’s about the potential for damage in a specific area, not necessarily if they’re primary or secondary homes.”

Some believe coastal areas file fewer claims than inland regions, yet coastal rate requests tend to be higher. Why?

Chappell said the interpretation often misses how filings treat hurricane losses.

“As far as dollar-for-dollar comparisons, the filing pulls out catastrophic losses,” he said. “We exclude name-storm hurricanes. You’re left with fires, thefts, the one-off claims.”

For hurricanes, the filing relies on catastrophe modeling rather than historical claims.

“You don’t want the big spikes you would get from storms,” he said. “The model smooths that out over time.”

That means storm-prone regions receive higher modeled losses even if recent claim years were quiet.

Does this filing include losses from Tropical Storm Helene?

No.

“That was not even in the data that we’re using for this,” Chappell said.

Most Helene losses were flood-related — a peril excluded from homeowners and dwelling policies — though insurers also paid significant wind claims.

Why did the Rate Bureau file another dwelling increase just a year after the last one took effect?

Chappell said the previous filing’s result fell far below what insurers say they need.

“The last filing was around a 50% request, and it was negotiated down pretty drastically,” he said. “We feel that settlement did not really get the industry to where it needs to be.”

The board instructed staff to update the data and file again.

“It’s a normal process to look at these annually,” he said. “With the way costs are going up, we feel it’s necessary.”

The filing shows the “indicated” rate and the “requested” rate. What’s the difference?

“The indicated rate is what the data and the math say it should be,” Chappell said.

While boards in earlier decades often requested less than the indication, “in recent years it has begun asking for the indicated rate.”

Requests may be phased in over two years, so the annualized percentages are multiplicative rather than additive.

Territory 120 (the central/southern coast) shows particularly high increases. Why?

Chappell said early review suggests the southern coast, which runs from Topsail Island to the South Carolina border, may show higher modeled hurricane losses.

“It could be that the catastrophe models are saying the southern coast is more in the line of fire,” he said.

Those modeled losses incorporate building density and projected storm intensity.

Many consumers misunderstand what the “base rate” means. How does consent-to-rate affect premiums?

“We set the base rate,” Chappell said. “Companies can deviate downward, or they can go above it using consent to rate.”

Consent-to-rate can go up to 250% of the base rate.

There are two “insurer of last resort” options for property owners who can’t secure coverage through the private market.

One is the “FAIR Plan” providing basic fire coverage when traditional carriers decline to write a policy, and the “BEACH Plan” that provides wind and hail coverage for homes and businesses in designated coastal counties.

The FAIR Plan and Beach Plan — which now dominate the coast — must use the approved rates.

“They don’t have the ability to deviate or use consent to rate,” he said. “What you get with that number is basically what you’ll see.”

In many coastal territories, competition has evaporated.

“For this dwelling filing in particular, there are not many insurance companies writing this form anymore,” he said. “The top ten carriers write most of it, and the Beach and FAIR plans write the majority in coastal territories.”

North Carolina’s FAIR and Beach plans went from about $200 million in written premium to $346 million over the past cycle, indicating a tightening private market.

At the same time, the top ten carriers in the state increased their market share from 90% to 94%, as the number of companies writing dwelling policies fell from roughly 85 to about 65.

Reinsurance has been a major driver of insurance costs nationwide. How does it affect North Carolina?

Insurance companies buy insurance of their own — known as reinsurance — to cover catastrophic losses.

“That market’s not regulated by the state,” Chappell said. “Those prices have gone way up.”

Global reinsurers, including major European firms, influence costs in every hurricane-exposed region.

“It’s the same reinsurance companies selling reinsurance to our companies here,” he said. “What happens in Florida impacts North Carolina.”

What about flood insurance — how does it fit into all this?

Flood risks are not part of dwelling or homeowners filings.

“Flood has been excluded from homeowners and dwelling policies since the dawn of insurance,” Chappell said. “It’s a totally separate policy, largely handled through the National Flood Insurance Program.”

Some coastal homeowners worry North Carolina will face a Florida-style insurance crisis. Is that likely?

Chappell said conditions differ, though trends overlap.

Florida’s challenges include a large residual market, litigation pressures and limited private-market appetite.

“They have ‘Citizens Property Insurance Corporation’, which is similar to our FAIR and Beach plans,” he said. “A large percentage of the market is written through that company.”

North Carolina has regulatory structures designed to stabilize rates and standardize coverage, but Chappell said the same national forces — climate exposure, reinsurance volatility, construction inflation — apply here too.

What does the Rate Bureau want consumers to understand about this filing?

Chappell said the Bureau’s mission is focused on market health and long-term availability.

“Our goal is to have a healthy marketplace in North Carolina,” he said. “We want insurance available for everyone at the proper rate. Having an adequate base rate allows competition and allows carriers to come in and competitively price individual properties.”

What’s next?

Public comment on the proposal closes at the end of business on Wednesday, which can still be submitted via email: [email protected].

If Department of Insurance officials do not agree with the requested rates, the department will negotiate with the Rate Bureau. If a settlement cannot be reached within 50 days, a hearing will be called.