Insurance bill offers vehicle for much needed review

State Sen. Tom Davis has taken the first steps down what he predicts will be long road for property insurance reform.

Davis filed a bill March 21 that lays out some changes to the state's insurance regulations that he hopes will improve competition and bring down prices for coastal property owners. His aim can be seen in the bill's title, "Competitive Insurance Act."

The bill, as it stands now, skims the surface of the kinds of reform it will take to make a serious dent in escalating prices for coastal property insurance. It builds on changes made to the law in 2007, but doesn't shake things up. And that's intentional -- for now.

Davis says he wanted to get a bill moving this session so that it could be worked on in the coming months, but he doesn't want to rush a measure into law only to have to deal with unintended consequences later. The example he chooses to explain his plan of action is a good one: The Property Reform Act of 2006.

Lawmakers responded to complaining constituents with a law that has caused a lot of trouble since it went into effect. Act 388 is a cautionary tale that should be heeded.

Davis describes his bill today as "skeletal," but it has some good components. He divides the bill and his goals into four sections:

  • A better informed consumer.
  • A regulatory environment that is efficient and encourages companies to enter the market.
  • Reduced risk from storms by getting more people to take advantage of tax credits available to help them pay to protect their property.
  • Greater transparency, including more information on premiums and return on equity for insurance companies.
  • "The goal is to have enough empirical data and testimony so that all parties agree to what constitutes a well functioning insurance market," Davis said.

    Getting more and easier-to-understand information about companies and their rates to consumers should help them make better buying decisions. And getting more information about premiums collected and claims paid should help lawmakers and homeowners hold insurance companies accountable.

    Two issues that should be addressed in the coming weeks and months are the limits on premium increases and the models used to assess the risk of insuring property along our coast.

    Davis says he wants to understand the level of oversight companies get under a streamlined regulatory process for rates of up to 7 percent annually. That 7 percent is a statewide average so some areas of the state can see much larger hikes, while other areas see lower or no rate increases.

    And he agrees that we need more and better information about the rates charged other parts of the Atlantic and Gulf Coast seaboard. Davis said he had seen enough data to make him think South Carolina coastal property owners were getting charged more than property owners facing greater risk from damaging storms.

    Statewide, rates have increased 71 percent during the last decade -- even more along the coast -- and are nearly three times higher than in 1996, according to data reviewed by The (Charleston) Post and Courier.

    The insurance industry should welcome this process. Industry representatives say some data indicate South Carolina has the fourth-lowest rates along the Gulf Coast and Southeast for homes insured for less than $500,000. Insurance company officials add that insurers paid 79 cents in claims in 2011 for every premium dollar they collected. Once operating expenses are considered, the top 11 carriers, on average, paid $1.22 for every $1 earned in premiums.

    We should be able to get objective information that tells us whether we are being appropriately charged for the risks associated with owning property along the South Carolina coast.

    Davis plans to hold a series of public hearings on this bill, with a goal of passing it during the 2014 legislative session.

    A detailed, comprehensive and objective look at coastal insurance should benefit property owners and the insurance industry alike.