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BEACH PLAN CRISIS

There is a growing crisis on the coastal plain and in North Carolina's beach plan. When formed in 1969, the North Carolina Insurance Underwriting Association was designed to provide homeowners along the coast with an insurance option. In 1998, the Plan was amended to include coverage for wind and hailstorm damage for coastal counties and now provides homeowners policies for primary homes throughout the coastal plain.

Today, the Beach Plan has $700 million in reserves - money set aside to pay for damage from hurricanes or other weather events along our coast and the next $500 million in losses would be paid directly by the carriers. This cost is passed on to all policyholders in North Carolina not just coastal dwellers.It sounds like a lot of money, but the most recent estimates show that if a Category 3 hurricane hit nearly any portion of our coast, losses for the Beach plan could exceed $4 billion.

For years, the Plan would pay out profits when we had good years along the coast to the companies who are obligated to participate in the plan rather than reinvest that money into the Plan. Additionally, the Plan's Board has wisely purchased reinsurance for an additional $1 billion in coverage, but even that leaves us with $2billion in exposure.

If we had a significant, or even a major hurricane,that $2 billion exposure would require payments from all insurers to make up the losses and would likely result in a Florida-type abandonment of our insurance markets and a number of failed insurance companies. This is unacceptable. We are being left with this crisis. It will require real leadership to resolve this dilemma. We should not be left holding the bag after Jim Long retires.

As Commissioner of Insurance, I will work with the Plan's Board to adopt immediate steps to improve the financial situation in the Beach Plan. My plan is as follows:

1. Adequately fund and manage our state's Beach Plans. I support policies which will require that the Beach Plan Board direct all profits earned by the Plan to be retained in the Plan's catastrophe fund until this fund is at $1.5 billion.

2. Change the incentives of the Beach Plan to attract more competition. Today's legislation encourages carriers to not sell homeowners and commercial property insurance. That's wrong and the incentives ought to be changed to encourage more carriers to view the North Carolina's coast as a strong and viable market for their products.

3. Strict enforcement of building codes and insurance requirements for lenders in North Carolina. Lenders in North Carolina are not vigilant enough in requiring flood insurance or even carrying an appropriate amount of insurance for residential and commercial property. I will work with the Banking Commission and lenders to minimizing these requirements when loans are originated.

4. Allow variance in minimum deductibles for non-Beach homes. Currently, under the Beach Plan, individuals who live in coastal areas covered by the Plan have very high deductibles on their homeowners insurance, meaning that these individuals must pay $2,500 or more out of their pocket before the insurance pays for any damage. While this might be the right deductible for someone owning a large second home on the coast, it's hardly appropriate to the many people who live more modestly in their only home within the coastal plain. I would having the minimum deductible set at two different levels - one for homes within the beach portion of the Plan and a second for those homes in the coastal counties so that there is a deductible that is appropriate and reasonable for those homeowners.

With leadership, North Carolina's Beach Plan will not suffer the same fate as those in other beach states. As Insurance Commissioner, saving the Beach Plan will be something done before there is a real crisis.