Passive Regulation

New S.C. insurance director should challenge risk models that drove up coastal rates

Gov. Mark Sanford wants to leverage market forces to provide more homeowners insurance options for coastal homeowners but thinks it unwise for the state to mandate lower premiums. Nor does the governor support buying down wind and hail coverage premiums for coastal homeowners inland of U.S. 17. Mandating lower premiums could prompt even more insurance providers to exit the S.C. market. And expanding subsidized tropical storm coverage, over time, could drive up premiums for inland insurance ratepayers.

But as a report in The Sun News last week strongly suggested, there is one way Sanford could give coastal homeowners hope of lower homeowners' insurance premiums. Through the Department of Insurance, a Cabinet agency, he could challenge, aggressively, the revised risk models that many companies have used to jack up coastal insurance premiums.

Those models show - or purport to show - that the Horry County coast has a higher risk of being struck by hurricanes in all categories than communities farther south along the coast. The eastward curvature of the coast north of Charleston pushes coastal Horry County into the path of north-moving hurricanes.

Horry County, the models show, has a higher risk of hurricane strikes than midcoast Charleston or south-coast Beaufort County. As a result, Horry County homeowners now pay the highest premiums in the state.

If these revised models are scientifically sound, then the higher rates with which insurance companies have slapped homeowners, especially condo owners via their associations, are legitimate. But the chief insurance regulators in some other states haven't accepted the revised models at face value, and neither should South Carolina.

S.C. Department of Insurance Director Eleanor Kitzman, who resigned this week, didn't get that. She told an S.C. House subcommittee recently that insurance companies doing business here "didn't have enough good information going into the models. With every storm, they learn something new. Primary catastrophe models were revised and put potential damage estimates at much higher levels."

And she blew off a request from the Consumer Federation of America that coastal insurance regulators reject rate increases based on the new models until they examine how analysts derived the new risk models. She told The Sun News she doesn't remember receiving that letter.

Regardless, she should have challenged the risk-management models as a matter of course. Regulators work for the people, not the insurance companies - or supposedly so.

Sanford insists that the legislative push to make the insurance director elective, led by Sens. Luke Rankin, R-Myrtle Beach; Ray Cleary, R-Murrells Inlet; and Dick Elliott, D-North Myrtle Beach, is inappropriate. Insurance regulation can function effectively for consumers as part of the governor's Cabinet, he says.

If Sanford truly wants coastal residents - especially Horry County residents - to believe that, he will demand that his nominee to replace Kitzman, Sen. Scott Richardson, R-Hilton Head, require insurers to prove their risk-management models are legitimate. S.C. senators should insist on that as a condition of confirmation.