The aim is to make the state's wind and hail insurance program more affordable, said Dean Kruger, the insurance department's chief casualty actuary. He was at Sun City Hilton Head on Friday giving a presentation on homeowners insurance trends.
The task force, which includes insurance industry representatives, has been looking at ways to improve South Carolina's homeowners insurance market. Rising construction costs, declining investment returns and more frequent natural disasters throughout the nation have caused state homeowners insurance premiums to skyrocket as of late.
The insurance department wants to lure more insurers to the state in hopes the added competition will bring premiums down.
The state's wind and hail program is run by an alliance of private insurance companies that pool resources to fulfill a state mandate, made law in 1971, that insurers make wind and hail coverage available to all home and business owners in coastal areas.
The South Carolina Wind and Hail Underwriting Association in July increased premiums 10 percent in July, the first hike since 1998, when wind and hail premiums rose nearly 24 percent.
The average yearly premium for a $200,000 home is about $2,000, according to the association.
Premiums for homeowners insurance offered by five of the state's largest insurers increased by an average of 12 percent in 2002, according to data from the insurance department.
Proposals to change the wind and hail program are in their early stages but one plan Kruger endorses would allow administrators to create a rainy day account by socking away premium income in tax-free investment accounts.
Such accounts are not used now because the Internal Revenue Service requires that premium income be taxed, Kruger said.
Under Dean's proposal, known as the "citizens plan," the wind and hail program would convert to a nonprofit organization with a public board. That, Dean said, would allow for the tax-free accounts.
Currently the alliance's board has 11 insurance company representatives, two coastal insurance agents and one consumer representative.
With no rainy day fund, the alliance uses most premium income to buy reinsurance, basically policies that insurance companies tap when catastrophes drain on-hand resources. The alliance currently has $235 million in reinsurance coverage, said its executive director, Smitty Harrison.
National reinsurance premiums have risen lately because of a recent spate of costly catastrophes, including the Sept. 11 attacks.
Under Dean's proposal the wind and hail program would mostly tap the rainy day account to cover losses instead of reinsurance.
But Harrison said higher reinsurance premiums were not the reason for the alliance's recent premium hike. He instead blamed most of it on rising construction and repair costs.
Harrison, who is on the department of insurance task force, would not comment on the merits of the wind and hail proposal.
But another insurance industry executive did and had some problems with it.
Phil Love, CEO of South Carolina Farm Bureau Insurance Co., in an interview, questioned how the rainy day fund would generate enough money in its early years to cover potential loses.
If there's a major storm there's "no money there to pay the claims," he said.
He said reinsurance coverage is available from day one.
According to the proposal outlined by Kruger in his presentation Friday, if the rainy day fund did not have enough money to cover losses, surcharges would be passed on to homeowners policy holders throughout the state.
"I just don't think that's going to sit well with people in the Upstate," Love said.
Kruger recognized the issue during his presentation but appealed to the rest of the state to recognize the economic importance of the coast.
Much of Kruger's proposal is modeled after a program the Florida Legislature created in 2002. That program, called Citizens Property Insurance Corp., aims to make insurance available to homeowners in high-risk areas who can't find coverage in the private insurance market. Its board is appointed by the state treasurer, according to its Web site.
The South Carolina task force has been examining the wind and hail program since May, said Kruger. He said he hopes to get legislation introduced during the upcoming General Assembly session.