Hardening Markets, Carrier Appetite Present Challenges for Independent Agents

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By Oscar Miniet

The North Carolina and South Carolina insurance markets have two key things in common: carrier appetite for a variety of risks has abated, and premiums on some of the most at-risk properties have skyrocketed – creating placement challenges for independent insurance agents in both states.

The issue of coverage availability is especially acute in coastal property, where rates have jumped as carriers continue to exit this line due to mounting losses and high reinsurance costs. Homeowners and their agents find themselves with fewer carrier options, with a good number of policies moving into the states’ insurers of last resort – the North Carolina Insurance Underwriting Association (NCIUA, also known as “the Beach Plan”) and South Carolina Wind and Hail Underwriting Association (SCWHUA), respectively.

In February, Nationwide Mutual Insurance filed notice with the North Carolina Department of Insurance that it would not renew 10,525 homeowner policies in the state. The highest number of non-renewals were in Pitt County, near the coast; in Wayne County, about 30 miles inland from Pitt; and in Dare County, home to the Outer Banks and the Kitty Hawk and Nags Head communities.

In June, the carrier said in a statement, “Strong headwinds brought on by the economic environment, catastrophe weather events, and the impact of inflation continue to impact the entire insurance industry.”

Many independent agents and insureds, however, claim they didn’t receive word until months later – and now find themselves in a quandary. Of those policies not renewed, 4,744 are being referred to the North Carolina Insurance Underwriting Association’s (NCIUA) Beach Plan.

“Carriers have recently notified NCDOI, producers, and consumers of their intention to cease or reduce writing property coverage in North Carolina, especially in the eastern part of the state,” North Carolina Insurance Commissioner Michael Causey tells Renaissance. “Consumers may be forced to have a much higher deductible or reduced coverage in order to have affordable insurance.”

The impact of those higher deductibles is being felt as far inland as I-95, agents say. In order to keep their rates affordable, insureds are having to take on much higher deductibles than they’re used to – and it’s up to the agent to educate homeowners about what a higher deductible will mean for their out-of-pocket costs should their policies trigger.

Higher premiums, less availability

Coverage provided by the states’ insurers of last resort isn’t nearly as robust as that offered by traditional insurers, notes Keith Hayes, Vice President of the Jake A. Parrott Insurance Agency in Kinston, N.C.

“We’ve seen condo associations that now have premiums coming in so high that they’ve had to look at other [insurability] options,” Hayes says. He mentioned another client, a manufacturing company, whose premium used to be $30K that has jumped to $70K, and had to be moved to state insurer.

Adds Hayes, “It’s become a shell game of, ‘where are we going to put this account?’”

“Going into 2024 it is likely that the availability of affordable coverage for finding coverage [for coastal property] at all will be more difficult,” Commissioner Causey adds. “The landscape of where coverage will be placed will likely change from a higher percentage in the admitted market to the non-admitted market.”

Insurability for coastal property is likewise difficult on the Grand Strand of South Carolina, where premiums have doubled or even tripled for some residents as admitted carriers have tightened their underwriting.

Those premiums for coastal property – most of which are now charged by Excess & Surplus insurers – could have climbed even higher had Hurricane Idalia, which struck in late August, not shifted and reduced wind speed as it moved inland. Insurers in the Carolinas were “all breathing a sigh of relief” and counting their blessings, Russ Dubisky, an official with the South Carolina Insurance Association and the Insurance Federation of North Carolina, told Insurance Journal in the hurricane’s aftermath.

It is not only longtime insureds who are desperate to secure coverage; In Brunswick County in North Carolina, one of fastest growing communities in the U.S., there isn’t enough capacity for the new homes being built – and those homeowners are looking to the E&S market.

Problems in personal lines

The Carolinas’ hardening coastal property market is a symptom of a chronic issue: limited carrier appetite for a variety of risks including commercial property and commercial auto, agents say. The picture for personal lines, however, is even worse, with very little if any carrier desire for new business.

Personal auto, for one, is a line that continues to suffer. According to Swiss Re, the 112% combined ratio for personal auto in 2022 was the highest since at least 1975 – and the line’s loss ratio is still elevated in 2023, suggesting a way to go before it turns profitable again. (The six-months-2023 combined ratio stood at 104.4%.)

Hayes says that these days, most carriers don’t want to take on personal auto clients without a homeowners policy added to it. “Many carriers won’t write mono-line business,” he notes.

The challenges in personal auto persist despite substantial underwriting and pricing actions taken by carriers, including a 19% increase in motor vehicle insurance costs in August. Fitch Ratings notes that unfavorable loss-severity patterns in physical damage and bodily injury coverages, as well as higher litigation related costs, continue to plague this line.

Rate increases for drivers in the Tar Heel State will grow on average by 4.5% annually both later this year and next as part of a settlement reached between insurance companies and state regulators.

Personal auto is also a line marred by fraud in South Carolina, which in 2022 saw a record 3,182 complaints of insurance fraud. This year, in just 10 months the number of complaints logged has nearly matched the previous year’s total.

State lawmakers are now looking into the reasons for the increase, but the state DOI’s Fraud Division Director Joshua Underwood, an assistant state attorney general, told lawmakers in October that nearly half of the fraud claims were auto insurance-related, including the staging of accidents by organized crime rings.

Closing time?

While it’s not uncommon for states to require restaurants and bars by law to carry $1M in minimum liquor liability coverage, rising insurance premiums in South Carolina are now putting many establishments out of business. In 2023, some establishments have seen their premiums more than triple to as much as $350,000 a year for a small bistro. Other bars have had their rates increase more than sixfold.

South Carolina bars and restaurants have had to carry $1M in coverage since 2017, after the South Carolina General Assembly mandated the minimum following a car crash by a drunken driver that killed two people and severely injured a police officer. Neither the driver nor the drinking establishment had liability insurance.

A pair of high-profile events this year, however, put pressure upon insurers to raise rates. In June, a woman was charged with felony DUI and reckless homicide after she crashed her car into a Charleston woman who had just been married. Authorities claim the driver’s blood-alcohol level was three times the legal limit, and four separate establishments have been sued for their role in providing alcohol to the driver.

Also this year, three insurers are paying the bulk of a $15.5 million civil settlement involving the son of convicted South Carolina attorney Alex Murdaugh. Parker’s Kitchen, near Charleston, was shown to have sold beer to Murdaugh’s underage son, Paul, in 2019. Paul then crashed a boat into a bridge, killing a 19-year-old girl who was thrown from the craft.

In September, the Alcohol Beverage Licensing Division of the state Department of Revenue this month posted an advisory opinion stating that a liquor liability policy providing aggregate coverage of $1 million – not $1 million per incident – would satisfy the 2017 statute. Conceivably, that could make coverage more affordable for smaller establishments, though those discussions are ongoing.

How an agency network can help

Agency networks do not have the power to change market conditions that impact an entire industry. However, a network like Renaissance that is committed to supporting the independent agent system can provide resources, insights, and technology that help independent agents remain competitive in the face of ever-changing market conditions. Learn more here.

Oscar Miniet is Regional Executive Vice President, Southeast, for Renaissance.

 

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