News Release



Cliston Brown











March 21, 2012



PCI Supports Rate Making Changes In North Carolina


RALEIGHThe Property Casualty Insurers Association of America (PCI) today submitted written testimony to the North Carolina Legislative Research Commission Subcommittee in support of important rate making changes for homeowners insurance. The changes would encourage insurers to write new business and also provide a fairer rate environment for policyholders.


Specifically, PCI urged the committee to consider a flex-rating program as a transition to an open rating environment in North Carolina and applauded lawmakers for taking up the issue of property insurance rate making.


“Flex-rating programs would provide more flexibility to insurers already doing business in North Carolina, likely attract more insurers to the state, increase competition, and lower insurance premiums for many policyholders,” said Don Griffin, PCI’s vice president, personal lines.


PCI also suggests that the flex-rating provision should sunset after a period of 5 years and be replaced by an “open rating” environment in North Carolina. PCI believes that during the flex-rating term, an insurer’s dependence and use of the North Carolina Rate Bureau should diminish and when the move to an “open rating” environment is made, use of the NCRB should be optional for all insurers. At that time, the insurers that truly bear the risk of loss should have the freedom (and the experience) to establish their own rates in North Carolina.

The system would still ensure that larger changes must undergo regulatory review before going into effect.  And for competitive rating the regulator would still have significant oversight of insurance to make sure markets operate fairly.


“North Carolina is the only state that has a rate bureau for property insurance,” Griffin said. “A rating system more consistent with other states would help maximize competition in the state’s insurance market.”


Additionally, PCI suggests that the state classify risks by geographical location, whereby high-risk areas would pay a fair share of the costs for their particular exposure. Territorial rating has long been used in the pricing of insurance rates. Because of wide cost differences occurring in different areas due to differing events, insurers must be able to distinguish regions with greater loss potential from those with less.


“In order to achieve price equity among policyholders, companies must be able to rate on the basis of the risk insured,” Griffin said. “The greater the exposure to an insurable loss, the higher the premium should be. If rates do not reflect costs, subsidies will occur whereby lower-risk policyholders must pay more to offset the losses of higher-risk policyholders. This is precisely what has happened in North Carolina, since rates are the same for all residents of the same county. Therefore, PCI supports territorial deviations from, with actuarial justification, the North Carolina Rate Bureau established territories. Again, a significant number of policyholders would benefit from such flexibility.”


PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $174 billion in annual premium, 37.1 percent of the nation’s property casualty insurance. Member companies write 43.1 percent of the U.S. automobile insurance market, 30.6 percent of the homeowners market, 35 percent of the commercial property and liability market, and 41.5 percent of the private workers compensation market.



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