South Carolina coastal insurance reform

Governor Dr. Robert Bentley recently appointed the Affordable Homeowners Insurance Commission to address “the troubled insurance market” with an eye to passing legislation in a special session.

Dr. Love says: “The lack of affordable insurance is an important issue that many in Alabama face. After the devastating tornadoes of April, insurance reform needs to be examined now more than ever.  I want this new commission to work together to stop the rising cost of insurance for the benefit of all Alabamians.”

In looking for information as to just what this means, I Googled “coastal insurance reform” – the top hit was my article on “Coastal insurance reform”.  That is no help to me (other than to feed my ego), and believe me it’s not much help to you either.  Fortunately, the South Carolina Omnibus Coastal Property Insurance Reform Act of 2007, co-sponsored by now-Governor Nikki Haley (R), was also listed. 

The South Carolina Department of Insurance has a nice overview of coastal insurance information (I’m not sure how much of this info applies to Alabama, but it’s a start – keep in mind that this is not my forte – ask me about my tomatoes):

The increases that coastal property owners have experienced are attributable to the cost of reinsurance and the cost of reinsurance is attributable, in part, by rating agency actions.

Rating agencies rate the financial strength of insurers… Consumers benefit from these ratings because they are assured that their claims will be paid.  Additionally, insurers with better ratings receive better credit terms than insurers with lower ratings.

Based on the current weather predictions and catastrophe model estimates, rating agencies have increased the capital requirements for insurers writing coastal property insurance…

As a result of rating agency actions, insurers have sought to purchase additional reinsurance.  Reinsurers, which are subject to the same rating agency actions, cannot write as much business as before and/or they must charge higher premiums to insurers because of the increased demand for their product.  Just as rating agencies were requiring insurers to purchase more reinsurance, they were requiring reinsurers to sell less at a higher price.  These increased reinsurance costs are ultimately passed along to consumers.

The SC Omnibus Act created tax credits for “home fortification” as well as an “Safe Home Program” which provides grants for mitigating / retrofitting homes.  The Act created a “Catastrophe Savings Account” for homeowners to cover insurance deductibles or self-insure. The Act provides a premium tax credit to insurers for providing coverage in high risk areas.  The Act created the “South Carolina Wind and Hail Underwriting Association” (Mobile and Baldwin Counties have a similar underwriting association),  The Act amended the “ratings plans” to allow for discounts (or surcharges) for several factors including construction standards, building codes, distance from water, elevation, et cetera.  The Act included the South Carolina Coastal Captive Insurance Company Act, which allows “a license to write primary and excess wind and storm surge insurance covering property within the State of South Carolina, and may not write insurance covering any other perils nor may it write insurance coverage in any other state.”

Alabama has some of this in place, thanks to the efforts of people like Senator Ben Brooks (R – Mobile) and Representative Steve McMillan (R – Gulf Shores).  Once the Insurance Commission starts meeting, I hope that our local appointees (Wayne Parker, Joe Demos, and John Caylor) keep us informed of their proceedings.

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