The Outer Banks Voice – CSI lecture addresses homeowner insurance and coastal resilience

By Kip Tabb | Outer Banks Voice on August 30, 2024

By Kip Tabb | Outer Banks Voice

In a wide-ranging discussion on homeowner insurance in coastal North Carolina at the Coastal Studies Institute (CSI) on Aug. 28, Don Hornstein, Director of the UNC Law School’s Center on Climate, Energy, Environment, and Economics, focused on the process of determining insurance rates in the state, insurance company practices and coastal resilience.

Hornstein, who is also a board member of the North Carolina Insurance Underwriting Association (NCIUA), has been part of the UNC faculty since 1989 specializing in insurance law, regulation and regulatory compliance, and environmental law.

Back in February 2024, NC Insurance Commissioner Mike Causey announced he was rejecting the insurance industry’s proposed average increase of 42.2% in homeowner’s insurance rates and set an Oct. 7 hearing date on that proposal.

Addressing the rate increase with the CSI audience, Hornstein said, “It’s not going to be 100% or 90% or anything like the [commercial insurance companies’] proposal. It’s going to be somewhere south of the midpoint. I don’t know what it’s going to be. Ten or 12 percent is my guess.”

Hornstein is a bit of an outlier on the NCIUA board. Board members are appointed by the state’s insurance commissioner and the NCIUA was created in 2009, Commissioner Wayne Goodwin, a Democrat, asked him to serve on the board. In 2016, Goodwin was defeated by Causey, but Hornstein was asked by Causey to remain on the board.

“Just for the record, that probably makes me the only bipartisan professor at the UNC Chapel Hill campus,” he said.

The NCIUA is sometimes referred to as the insurance company of last resort. Created by the Essential Property Insurance for Beach Area Property Act, the NCIUA acts “as a market of last resort to provide adequate essential property insurance to property owners having insurable property in the Beach and Coastal Areas of North Carolina.”

When it was created, the need for an insurer like the NCUIA was part of a national trend. Large insurance companies had already stopped covering flood insurance in 1968, Hornstein said, but “beginning in 1990, many of the big insurers stopped being willing to cover wind. They would simply leave the market.”

That led to state legislatures creating insurance companies like the NCUIA that are properly termed, Hornstein said, as a “residual risk entity.”

“Enrollment shifted and grew as private insurers dropped polices,” he said. “All these policy holders migrated to [residual risk insurance] and the rate of growth was 1,500%. Citizens Insurance, which is our counterpart in Florida, became the fourth largest insurance company in the United States.”

Addressing the coastal resilience and risk management for homeowner insurance, Hornstein described FEMA’s CRS (Community Rating System) that lowers premiums for flood prone areas “for actions that contribute to their flood risk reduction,” according to the FEMA website.

FEMA’s flood insurance rates, which has not covered losses for decades, will continue to rise at 18% per year “until you reach the full actuarial value,” or what it really costs to cover homes and businesses in a flood prone area, Hornstein noted. FEMA’s Flood Insurance Program is purchased through commercial insurance companies.

The CRS, however, pushes communities to take steps to be more flood resilient, and if they do so, the community’s flood insurance rates are reduced. Dare County and the incorporated towns of the county participate in the program.

In his remarks, Hornstein also detailed the NCIUA’s fortified roof program that is designed to reduce its insurance risk and help clients. Policy owners who are replacing their roofs are eligible for an $8000 grant to install a Fortified Roof that is designed to withstand hurricane force winds and rain.

The idea for the fortified roof came from an image of the Bolivar Peninsula just to the north of Galveston seen on CNN after Hurricane Ike swept ashore in Texas in 2008. The scene is of complete devastation, except for one home that is intact.

“So I looked into it, and it turns out that house was built above code,” Hornstein said, explaining how he came to the conclusion that a home could be built to withstand a hurricane.

Started as a pilot program in 2016, by 2023 fortified roofs were on 13,000 homes along coastal North Carolina, according to Hornstein, who added that, “This year coming…we’ll double it. We’ll go to 25, 26,000 homes. It is the largest single insurer led resiliency program in the world.”

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To view the video of the presentation visit Coastal Studies Institute YouTube page.

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