Consider for a moment what would happen if your city, county and school governments doubled your tax bills.
“There would be a huge uproar,” said Daryl Ferguson, a retired executive from Beaufort. “There would be referendum votes, and people would definitely not be re-elected.”
And yet ...
Something similar has happened in coastal counties of South Carolina, but the government isn't raising your taxes. It's home insurance companies hiking your premiums.
During the past decade, average home insurance bills statewide have risen 73 percent.
But this increase masks much larger rate hikes on the coast. Some homeowners in Charleston, Beaufort and other coastal counties have seen their premiums triple, and now pay more for home insurance than property taxes.
What's more, South Carolinians pay on average about one-quarter more for their homeowners' insurance than property owners in North Carolina and Georgia, a Post and Courier analysis shows.
And insurance companies aren't talking about lowering rates, even though home values and the cost of replacing homes has stagnated or gone down. Just this year, Allstate, the state's second-largest company, raised rates 18 percent statewide and 35 percent for people who live in Charleston County and other areas near the coast.
Then the company promptly announced that it was dropping 10,000 customers who had older houses and didn't have Allstate auto coverage.
Where is the uproar? “I think people feel disenfranchised and discouraged,” said Ferguson, who ran several large utility companies before he retired. Concerned about the economic impact of these rate increases, Ferguson said he has spent 2,000 hours investigating the state's insurance situation, and he formed a team of business people and lawmakers to push reforms.
“This is a huge issue because these rates are taking money out of our pockets when times are as tight as ever; they're affecting tourism and economic development,” he said. “We have a small BP situation here, a slow-moving economic blowout and we're feeling the first oil come to shore.”
Can anything be done to stop this surge of higher rates or help consumers in other ways? Consumer advocates and insurance experts say yes, but it will take creativity and leadership.
Five years ago, the General Assembly passed a law that virtually gave home insurance industries a blank check to raise rates, as long as the increase was under 7 percent annually.
Before the law, insurance companies submitted requests to raise rates to the state Department of Insurance, which triggered public hearings and scrutiny from another agency, the state Department of Consumer Affairs.
Now, insurers wanting to raise rates less than 7 percent submit their requests and wait 30 days to see if the Department of Insurance objects. No public hearings. No public notification. All the information is kept confidential until the rate increase is accepted.
The result: Many insurance companies are filing 6.9 percent increases, said Elliott Elam, attorney for the state Department of Consumer Affairs.
Lawmakers say it helped streamline the insurance process and encourage new insurers to do business in the state, but critics say it made it easier for insurers to raise rates.
“We need to look at whether this exemption is serving the people of South Carolina,” said state Sen. Tom Davis, R-Beaufort, a member of the Senate's banking and insurance committee. Spurred in part by Ferguson and The Post and Courier's “Storm of Money” series, Davis said he plans to hold formal hearings in the coming legislative session to examine whether the automatic rate increase law needs to be changed.
The insurance industry often urges consumers to shop around for the best policy. But buying insurance isn't like shopping for paper towels. When it comes to setting a price, insurers use everything from credit scores to their own internal data on how and when you pay your bills. J. Robert Hunter, insurance director for the Consumer Federation of America, said that because of the sheer complexity of the insurance industry's pricing strategies, consumers are at once “terrified and bored.”
In Texas, a state with even higher rates than South Carolina, consumer advocates are floating a novel idea: Requiring all insurers to offer a standard policy in addition to their other options. Doing this would at least make it easier for consumers to compare apples to apples and make “meaningfully informed choices,” said Alex Winslow, executive director of Texas Watch, a consumer advocacy group. “Because the market is so complex, competition doesn't really exist.”
Want to learn about how a company sets rates? Or which ones have raised rates and by how much? All this is in the files and databases of the state Department of Insurance, but good luck trying to ferret it out.
Digging through the state's cumbersome database practically requires a dual degree in insurance and computer science. To look at a filing, you have to travel to the department's headquarters in Columbia to access three different databases. Data older than eight years is destroyed or sent to the state's archives.
The state has some information on its website, but it's of limited help. For instance, a “premium comparison guide” on its website is a spreadsheet containing sample rates for a house with $150,000 in coverage. Even the state acknowledges that it's not easy to use.
Davis, the Beaufort state senator, said market-based solutions don't work unless consumers have clear prices that allow them to make good decisions. “The Department of Insurance can play a role in this.”
What can be done? Other states, such as Texas and Florida, give consumers Web tools that make it easy to compare rates and analyze an insurer's financial stability. South Carolina's insurance department is upgrading its website to make it more user-friendly, said Ann Roberson, director of media relations. But she said she was unaware of any new features.
This year, Allstate, South Carolina's second-largest insurer, raised rates 18 percent across the state, with customers in most ZIP codes along the coast seeing a 35 percent jump, according to a Post and Courier analysis. Allstate originally wanted a 40 percent statewide increase, but because its request was above 7 percent, it triggered a review by the state Insurance Department, which objected and got a reduction for consumers.
Several Allstate customers told the newspaper they were shocked by the sudden increase and were frustrated that they had so little time to adjust their budgets. The state Department of Insurance has this information buried in its files and databases, but it's difficult for anyone but an agency employee to access. Why isn't this information already available to the public? (See Number 3.)
Is it fair for an insurance company to pay for a rotten or poorly designed roof that comes off in a storm? Insurance companies say they could more easily reduce rates if the structures they insure could better withstand a hurricane or other catastrophe.
Lots of homes built in the 1960s through the early 1980s were cheaply built and didn't get stronger until tougher building codes were put in place. “I would want readers to see the value of hardening all the homes, not just assume the building code changes are enough,” said Michael Young, a senior director with Risk Management Solutions, a company that creates catastrophe models, computer-driven “black boxes” that try to put a number on hurricane risks.
That means communities need to better police building codes, and homeowners should be more responsible when it comes to upgrading their buildings.
The good news is that insurance companies already offer discounts when you do some upgrades, and the state's “SC Safe Home” program gives grants to people to do this.
The bad news is that home upgrades are complex and expensive projects, and most people don't know about the state's grants. Davis said the state insurance department could do a better job letting consumers know how they can take advantage of these ways to save money.
When it comes to rising rates, South Carolina isn't alone. In 2008, insurance companies in North Carolina passed a big increase for properties east of Interstate 95. “It put a baseball bat to the knees of an industry that was already suffering,” said Kathleen Riely, government affairs director of the Wilmington Regional Association of Realtors. Like South Carolina, North Carolina provided no way for the public to participate in rate-increase proposals. “We had no say or control,” Riely said.
Fueled by this frustration, she and other activists spent three years pushing through reforms that now allow North Carolinians to submit comments to regulators. It's unclear whether it has an impact on premiums but, she said, “It sent a huge message that basically we're not going to put up with it.”
The insurance lobby is powerful and well-stocked. On a national level, it spent $1.7 billion on lobbying, second only to the pharmaceutical industry, according to the Center for Responsive Politics. In South Carolina, insurers employ 25 lobbyists, including two former state insurance commissioners, Scott Richardson and Ernest Csiszar.
Who represents consumers?
“The short answer is no one, at least not anymore on a consistent basis,” said John Ruoff, principal of The Ruoff Group in Columbia, which does research and policy analysis for nonprofit groups. An organization called South Carolina Fare Share looked at health care insurance and other issues, but it shut its doors a year ago.
“Homeowners don't have time to lobby and make contributions, so it's a one-sided process,” said state Rep. Leon Stravinakis, D-Charleston, who has introduced insurance-reform legislation in recent years, only to see it sidelined by other legislative priorities. He said he has heard from residents about the frustration they felt over having no voice in rate-increase requests. He noted that the public has fair warning when it comes to utility rates. “Right now the public is completely shut out.”
Other states, particularly in Texas, California and Florida, have nonpartisan nonprofits that stick up for consumers. Texas Watch, for instance, has become an important player in the home insurance debate in that state.
There is one government-funded watchdog in South Carolina: the state Department of Consumer Affairs. The agency is a designated referee in insurance matters, and in the past was an important check on unreasonable rate increases.
But today, thanks to deep budget cuts, the agency is a shell of its former self, with just 32 employees, down from 72 in 2007. The agency has only two lawyers to study insurance cases, and no support staff, and almost no money for hiring experts with insurance expertise. Yet the agency, through its settlements and investigations, saved consumers $2.66 million last year, including $1.1 million through its intervention in home insurance cases. That's roughly the same amount as the agency's budget.
So, if housing values and replacement costs are stable or going down, why are insurance rates still going up?
The answer has nothing to do with your home and everything to do with the controversial ways insurance companies calculate risk.
In recent years insurers have become heavily dependent on catastrophe computer models. These models are supposed to tell insurers how much they would get whacked in a hurricane. Companies that make these models for insurers want to keep their models' algorithms and assumptions secret. (That's how they make their money, after all.) The problem: Most state regulators don't know how these models tick.
Florida has begun looking under the hoods of these models through a special commission. South Carolina is way behind. After The Post and Courier's “Storm of Money” series, the state hired several experts for a one-shot look at catastrophe models. They are working on a report, but models frequently change, and the state has no long-term plan to examine them.
Better use of catastrophe models also could help make the system more fair if applied properly, said Matt Chamberlain, an actuary with Milliman, a San Francisco consultant.
Right now, many insurance companies use ZIP codes as a way of identifying high-risk areas. Chamberlain said that's a crude system because ZIP codes can include risky beach front property and safer land inland. New computer models, on the other hand, can pinpoint high risk areas.
That may not save some people money, he said. It's more about accurately putting a price on risk. “If you don't use this (finer-tuned) method, some people who have less risk are going to subsidize the higher-risk properties. Is that fair?”
Ferguson said it makes sense to bring together insurance companies and come up with solutions that help everyone. That requires leadership.
With that in mind, he formed a team of experts in insurance, legal issues and real estate, and then contacted the governor's office. Gov. Nikki Haley “had encouraged the business community to work with her, and here was her chance.”
Instead, when he and another member of the team traveled to Columbia, they got pawned off on an assistant to an aide who said the governor was too busy to talk.
Rob Godfrey, Haley's spokesman, said the governor's office has received more than 30,000 meeting requests, emails and other constituent inquiries this year, and staffers haven't yet received enough information from Ferguson's group to move forward with a meeting.
Godfrey said the state will continue to find ways to entice companies to write coastal insurance, and that as the governor screens candidates to be the next state insurance director, a position that has been vacant for nine months, “the topic of rates and coastal coverage is an important one that always comes up.”
A storm is brewing in the Atlantic; forecasters are fanning out along its projected path; it has a name. Beryl. Floyd. Hugo. Time for a gut check: Does your stomach tighten? After all, isn't South Carolina a hurricane magnet?
South Carolina's vulnerability to hurricanes is much more nuanced than the headlines on the Weather Channel might suggest. Experts say based on historical trends, minimal hurricane-force winds or higher will touch some part of South Carolina every five years.
Minimal hurricanes typically aren't catastrophes. It's the Category 3 and above storms that knock a city off its foundation. The 60-mile area around Charleston has seen only two of these since 1851 (Hugo and the Hurricane of 1893).
Narrow the location even more, and the situation is even less worrisome. A Post and Courier report showed that when analysts study a specific location's vulnerability, a coastal property owner would on average see catastrophic winds every 370 years or longer. “When you look at it, our coastline has relatively low risk,” said Ferguson, the retired CEO.
Moreover, he added, thanks to better forecasting, we often have a week to prepare before a storm hits. “So people can get out of the way. It's a property issue, not something that should threaten human lives.”
Keeping the risks in perspective should help guide decision-makers, he said. This is important because of our region's dependence on tourism. “We have a significant fall-off in our tourism in the fall, in part because of fears about hurricanes. We should be trying to increase the numbers of visitors during this time, not scare them away.”
Every year, South Carolinians shell out more than $1.3 billion in home insurance premiums. “Just think about what a 5 or 10 percentage decrease could do for our economy,” Ferguson said. “It would put a huge amount of money in people's pockets at a time when they really need it.”
Reach Tony Bartelme at 937-5554