Your NC homeowners policy rates are among the lowest of any state in the southeast.  And relatively speaking, they should remain that way.  But brace yourself, homeowners insurance in North Carolina is not only getting more expensive, it is also becoming harder and harder to find.

Most insurance companies that write auto insurance and home insurance in North Carolina, also insure homes and cars in other states all across the country.  The losses that they pay are aggregated across their entire book of business.  This is usually a good thing as a big storm in one state can be balanced out by a profitable year in other states.  In 2011 this formula did not work out well for most insurance companies as 2011 was a year of storms and weather related losses all across the country.  While it takes a bit of time for the numbers to work their way through the system, it is a pretty easy call to say that insurance rates for homes in North Carolina will almost certainly be increasing in 2012.

The numbers aren’t all in yet, but the insurance industry has suffered 4 straight years of record losses for homeowners insurance policies.  These losses have to be made up somewhere and that somewhere will be the rates that you pay for your home insurance.  Here are some numbers to show you the trends that the insurance industry has been fighting against for the past 4 years.  In 2008 the average cost for a homeowners policy in the United States was $791.  In 2009 that number climbed to $799 and in 2010 it went to $807.  The 2011 number is estimated to be about $840.  For 2012 we can expect a national increase of about 5%.  However, in NC, where we had heavy hail losses last Spring, combined with the underfunded beach plan and the uncertainty that this situation causes for insurance companies, I think you can expect rate increases of more than 5% as well as an increasingly shrinking market for homeowners insurance.

We have already see a number of insurance companies starting to place limits on the homeowners policies that they will write.  Many now require that you place your auto insurance with them or they will not write the home insurance at all.  Others have even closed their doors to all new homeowners insurance policies while still others are reducing their homeowners exposure in NC by nonrenewing  a number of policies in their book of business.

So what can you do to protect yourself and your home from this troubled environment?  First of all, use an independent agent.  If you choose to use a direct writing company such as a State Farm, Nationwide, Allstate or Geico, bear in mind that if your insurance company takes drastic action, then your agent will probably not have an alternative solution for you.  This could leave you scrambling for coverage in tight marketplace.  Also, be sure to combine your home and auto insurance with your independent agent to place them both with the same insurance company.  This will save you money and will make you a more important client to that insurance company.  If your insurance company begins to take action to reduce their homeowners exposure in NC, then your account is less likely to be affected and if it is, since you used an independent agent, you are more likely to have the help you need to keep continuous protection in place for your home.

For those of you out there who depend on flood insurance to protect your property from losses during drastic weather conditions, did you know that there is no guarantee that your flood insurance will be renewable when it expires?  You see, the flood insurance program is sponsored by the federal government and the laws that allow this program to exist are currently being debated and caught up in other bills that leave some doubt as to whether or not we will have a National Flood Insurance Program after May of this year.

You might be wondering why the federal government is mixed up in an insurance program like this in the first place.  Well, flood insurance is a funny animal in that those that need it most (those in flood plains) are the only ones who will ever consider purchasing.  Since those with no risk (those who live at the top of a hill) will never want to buy flood insurance, the insurance companies selling flood insurance would face an adverse selection process when they sell flood policies.  This would make the cost of flood insurance nearly unaffordable as there is no subsidy at all from the lower risk buyers.  So the federal government steps in with the NFIP.

The NFIP must be continually reauthorized by Congress periodically as its charter expires.  The most recent extension was passed at the 11^th hour on Dec 23, 2011 but this extension only authorizes the program through May 31, 2012.  Barring an extension past that date, the NFIP will cease to function.   Normally this kind of deadline doesn’t create a huge problem, in fact the current extension is the 15^th one since 2002 and in 2010 the NFIP was allowed to lapse four different times.  There were 53 days in 2010 when you could neither purchase a new flood insurance policy nor renew an existing one.   And I’m willing to bet that most of the homeowners who lost coverage during that time were at best only dimly aware of the new risks they were taking on.

The problem for the NFIP, and the reasons it is getting band aid type treatment as opposed to long term funding support are complicated but in large part are unrelated to the NFIP itself.  The debt limit issues that the government ran into in late 2011 led to this current short term extension instead of a multi-year solution.  Also, the bill in which the legislation to extend the NFIP charter into 2016 is also tangled up with a few political hot potato items such as tax rates and the Medicare payments to doctors debate. 

If you live in a flood prone area, be aware that your homeowners insurance policy will not cover losses due to flooding.  You will need to purchase a flood insurance policy to have protection.  If you have a flood insurance policy in place, then keep a close eye on your mail or stay in touch with your agent to make sure that your policy remains in force after May 31^st.  At this point there is no certainty that you will be protected on June 1^st.