North Carolina’s Unique Insurance Market: It’s Time for Change

Insurance markets differ in important ways from state to state, and North Carolina’s stands out for two reasons. First, insurers responded to an exceptionally catastrophic storm in 2024—Hurricane Helene. The Tar Heel State bore $60 billion of the hurricane’s $80 billion in damages. Second, North Carolina is the only state that continues to promulgate insurance rates using its own statistical rate bureau. This Real Solutions analysis explains the dynamics of the state’s homeowners’ insurance market and presents solutions to strengthen it, advancing the twin objectives of policyholder protection and insurer solvency.

The Big Storm

The loss of life from Hurricane Helene was a human tragedy of vast proportions. The storm, which also struck Florida, Georgia, South Carolina, and Tennessee, took 250 lives—107 in North Carolina alone. The extent of property damage was remarkably high as well, at $5,394 per resident (or 9 percent of the state’s $662 billion gross domestic product). That’s a huge burden for North Carolina, where the median family income sits below the national average at $69,904.

The average cost of homeowners’ insurance in the state is $2,087, which represents 3.3 percent of North Carolinians’ median family income. With the addition of automobile insurance, insurance payments can be burdensome. Only $6.3 billion in losses from Hurricane Helene were covered by insurance, representing approximately 10 percent of total property loss. (Flood insurance is not included in standard homeowners’ insurance policies.)

The enormity of Helene-induced losses underscored the importance of a well-functioning insurance market in North Carolina. One way to strengthen the market is to reform the state’s antiquated rating bureau.

What’s a Rating Bureau, Anyway?

Prior to the introduction of computers, insurance companies pooled their data in order to price their products at actuarially sound, risk-adjusted rates. Statistical rating bureaus calculated these rates for use by insurers. The intention was to prevent rates from being too low, thereby jeopardizing insurer solvency. Organizations like the Mutual Insurance Rating Bureau and the National Bureau of Casualty Underwriters provided statistical and actuarial services for their member insurers.

With greater computing power and increased availability of data, insurers were better able to analyze risk and develop their own rates to distinguish their products from others. Another factor driving the fading of statistical rating bureaus was the perception that they behave like cartels. A scholarly article by economist Paul Joskow found that “the combination of cartel rate making and other collusive behavior with state regulation of rates, rating classes, territories and other insurance expenses resulted in unnecessarily high prices and excess capacity.” Today, most surviving statistical rate bureaus provide advisory rates only; however, one still requires insurers to use its rates: the North Carolina Rate Bureau (NCRB).

Insurance Rate Battles

The relationship between the NCRB and the North Carolina Department of Insurance is somewhat adversarial, with the NCRB advancing insurers’ interests and the state insurance department promoting policyholder interests for lower rates. Such tension was revealed recently when the department significantly pared down an NCRB request for double-digit rate increases. As Insurance Commissioner Mike Causey reported in an announcement regarding premium increases, “The insurance companies wanted to raise our homeowners’ rates up to 99.4% in some areas and an average 42.2% statewide in a single year. I fought for consumers and knocked them back to 7.5% increases over two years with a maximum of 35% in any territory. We consider this settlement a big win for both homeowners and North Carolina.” This example illustrates the process wherein the NCRB makes a formal request of the commissioner, who then denies the request, arranges a hearing, and negotiates privately with the bureau.

When standard rates are deemed insufficient due to above-normal risk, insurance companies can charge higher rates via the “consent to rate” process. The Department of Insurance hasn’t approved rate increases at the level insurers have requested, so some have stopped renewing policies in parts of the state.

North Carolina Homeowners’ Insurance Market Performance

Last year was challenging for North Carolina homeowners’ insurance companies, largely due to Hurricane Helene. The homeowners’ insurance loss ratio for the state’s top 10 insurers was 72.9 percent. Adding 30 percentage points for expenses, the combined ratio—a standard measure of underwriting profitability—is about 103 percent. This means that for every premium dollar insurers took in from policyholders, they paid out $1.03 in loss and expenses. Writing insurance with such an underwriting loss is unsustainable; however, as shown in the following table, some insurers did manage to produce a positive result in 2024. The table also shows each insurer’s direct incurred loss ratio for 2023.

The only insurers reporting poor homeowners’ results in both 2023 and 2024 were North Carolina Farm Bureau Insurance (NCFBI) and Erie Insurance. In its most recent official statutory report, NCFBI management conceded that its biggest challenge in 2024 was “mother nature.” NCFBI had a retained loss of $113 million that year, which would have been much greater had NCFBI not bought substantial reinsurance to spread the risk. However, its ceded reinsurance was heavily concentrated on the American Agricultural Insurance Company and mandatory cessions to the North Carolina Reinsurance Facility and the National Flood Insurance Program, with a small cession to Hannover Re. Insurers typically have a much wider spread of risk among dozens of reinsurers. NCFBI managed some growth in surplus from the year before, with a modest increase of $35 million representing 2.7 percent of its $1.3 billion surplus. One reason for this is that, while homeowners’ insurance accounts for only 31.5 percent of NCFBI premium, automobile insurance represents 57.8 percent of its business—thereby providing some product diversification benefit.

When All Else Fails, the FAIR Plan Is There

When insurance agents or consumers are unable to obtain insurance coverage in the standard market, two entities serve as markets of last resort. The North Carolina Joint Underwriting Association (NCJUA), aka the Fair Access to Insurance Requirements (FAIR) Plan, formed in 1969 to provide property insurance for homes with elevated exposure to catastrophes. As of March 31, 2025, it had $253 million in surplus.

The market of last resort for coastal and beachfront properties is the North Carolina Insurance Underwriting Association (NCIUA), also known as the Coastal Property Insurance Pool or “Beach Plan”—a tax-exempt association of insurance companies authorized to write property insurance for homes with coastal exposure. As of March 31, 2025, it had $1.9 billion in assets.

Both the NCJUA and the NCIUA strengthened their balance sheets from having issued a catastrophe bond, providing an additional $507 million in protection. Both entities have used catastrophe bonds to boost their capital since 2009. A form of insurance-linked securities, catastrophe bonds are debt instruments that take on catastrophe risk and pay a coupon. For the issuer, they provide additional balance sheet protection; for the investor, they represent a diversifying asset class uncorrelated with market risk.

Where Insurance Companies Go to Die

Insurers experiencing severe financial troubles (e.g., the erosion of surplus) leading to insolvency are managed by the North Carolina Insurance Guaranty Association (NCIGA) so they can continue to meet their claims obligations. The two most recent insolvencies handled by the NCIGA are Florida-focused insurers that also wrote business in North Carolina: Lighthouse Insurance Company (liquidated in 2022) and United Property & Casualty Insurance Company (liquidated in 2023). Unlike in Florida, no single-state insurers in North Carolina have entered insolvency.

Solutions

Here are several possible measures that, if implemented, could strengthen the North Carolina homeowners’ insurance market and give insurers confidence to remain in the state, thereby benefiting consumers with more product choice.

• Reform the NCRB. The functioning of the NCRB is antithetical to competition. It maintains a stranglehold on rates and militates against insurance buyers having the benefit of marketplace choices. Past efforts to curtail the cartel-like NCRB structure have failed but should be reintroduced.
• Strengthen Building Codes. There is inherent tension between homebuilders and insurers. Seeking to maximize profits, homebuilders use inexpensive construction materials that may not withstand severe storms well. The North Carolina Home Builders Association has advocated against Building Code Council changes as well as legislation to strengthen building codes.
• Reinforce Your Roof. In 2012, Alabama pioneered a program called Strengthen Alabama Homes to provide grants to homeowners who fortify their roofs. The program has now spread to the NCIUA, whose Strengthen Your Roof pilot program allows eligible policyholders in coastal areas to apply for grants up to $10,000 to strengthen their roofs to the “FORTIFIED” standard promulgated by the Insurance Institute for Business & Home Safety.
• Increase Takeup of Flood Insurance. There are only about 150,000 flood policies throughout the entire state of North Carolina. In Buncombe County, among the hardest hit by Hurricane Helene, less than 1 percent of homeowners have flood insurance.
• Do as the Danes Do: The Copenhagen Solution. Implemented in 2012 following catastrophic flooding in the prior year, Copenhagen’s Cloudburst Management Plan replaces concrete and asphalt with surfaces that absorb water and constructs a network of tunnels to store water.

North Carolinians have suffered enough from Helene’s fury. They deserve an insurance market that serves their needs by keeping them safe and resilient when disaster strikes.