What happens if you can’t get insurance? Meet NC’s ‘insurer of last resort’

When Ohio-based Nationwide dropped 10,525 homeowners’ insurance policies in Eastern North Carolina last October, citing “inflation, catastrophic risk and reinsurance costs,” thousands of homeowners were left scrambling.

Many feared they would become uninsurable or, even worse, lose their homes.

That’s not necessarily the case.

In states like North Carolina, there’s always “the insurer of last resort.” Also known as the FAIR plan (Fair Access to Insurance Requirement), it’s the state-mandated insurer for high-risk homeowners who are unable to obtain coverage in the private market. In most cases, they’ve been denied coverage multiple times from standard insurers.

“Insurance agents don’t recommend the FAIR plan,” said Reginald M. Wright, a broker with Durham-based New Century Advisors. “Sometimes, it’s the only option.”

This state’s insurer of last resort is Gina Hardy, CEO of the North Carolina Joint Underwriting Association (NCJUA) and the North Carolina Insurance Underwriting Association (NCIUA).

From her corner office headquartered on Corporate Center Drive in Raleigh, she presides over the company’s two arms: the NCJUA, or the FAIR plan, which covers the state’s inland; and NCIUA, or the “beach plan,” which covers the 18 coastal counties.

While insurance is not legally mandated, most lenders require it. It’s also better than being uninsured and dangerously unprotected, Hardy said. “We’re essentially here as a backstop. We fill in the gaps when the private market chooses to pull back.”

As weather-related losses mount and insurance companies request double-digit rate hikes to stay in business, more consumers may take her up on it.

To be clear: The associations are not a state agency. Though created by the General Assembly in 1969, it’s a tax-exempt association of insurance companies , required by law, to write policies as part of a “shared market plan,” insuring thousands of properties worth tens of billions of dollars regardless of risk.

Hardy, who has served since 2011, answers to a board : half are elected by the industry; the other by the state’s insurance commissioner. Coverage is limited, she added, and typically more expensive. But it’s guaranteed.

“We don’t ask people why they’re coming, or from where,” she said. “You can come to us for a small period or several years. We’re just happy to provide a service.”

A response to redlining

FAIR plans first formed during the Civil Rights Movement in the late 1960s. They provided coverage to homeowners in communities where private insurers were unwilling. Such communities were often subject to redlining, a discriminatory practice that consists of systematic denial of services based on race or ethnicity.

Today, some 33 states and the District of Columbia offer some sort of FAIR plan. But in recent years, as billion-dollar-loss events become more frequent and carriers run for the exits, their market share has grown rapidly.

In troubled markets, like Florida, the insurer of last resort, Citizens Property Insurance Corp., is now one of the country’s largest writers of homeowners’ insurance. It had around 2% market share in 2023, S&P Global found. It’s also facing solvency concerns and a federal investigation.

Comparatively, Hardy said, North Carolina’s high-risk pool remains “as stable as we can be.”

The state’s FAIR plan saw market share, based on premiums, double — from 2% in 2012 to 4% in 2019. It’s stayed level since but as the state’s population surged, the number of policies jumped to 210,431 in 2023, up 6% year-over-year. Property exposure also increased — from $33.4 billion in 2022 to $43.6 billion in 2023, a 30% spike.

The beach plan’s share, meanwhile, has dropped to 58% in 2022, down from its peak — 80% — in 2013. Other coastal areas hover around 45%.

But again, exposure has ballooned. The plan insured some 235,313 policyholders for $125.7 billion in property exposures in 2023. Compare that to $96.4 billion just the year before. That’s up almost 30%.

‘Nowhere near our peak’

Still, “we’re nowhere near our peak,” according to Hardy. “Not by any stretch of the imagination.”

In 2024, the beach plan has about $4.6 billion in reserves, reinsurance and contributions from insurance companies, data shows. That’s after wind and hail losses from storms like Florence (2018), where it paid $1.5 billion in claims.

“We paid over 90% of all claims within 60 days,” she said, “with no assessment back to the industry.” The FAIR plan, meanwhile, has “unlimited assessment authority to member insurers to pay losses” and $145 million in catastrophe bonds, she said.

Such market stability wasn’t always the case.

In 2008, an actuarial firm commissioned by an insurer trade group found that the beach plan was ill-equipped to handle the next catastrophic storm. It had over $74 billion worth of exposure and no more than $1.5 billion in its coffers to pay claims. Companies like State Farm, Farmers’ Insurance and Encompass Insurance had begun to pull back.

It led to massive reform; and in 2009, the legislature put a $1 billion cap on the assessments the plan could collect from its members, ProPublica reported . It also directed profits from premiums to the plan’s cash reserve to pay for losses, operating expenses and reinsurance; and bought $1.5 billion in reinsurance to boost its finances, the report said.

“Since then, we haven’t had [any] sort of crisis,” said Don Hornstein , the Thomas F. Taft Distinguished Professor at the University of North Carolina School of Law. He’s also a member of the FAIR plan’s board of directors and served on the special commission to reform the association.

By and large, he added, bigger insurance companies have remained in the state, and “fly-by-night” insurers have left. “We have a “vibrant market,” especially compared to states like California and Florida, “where insurance availability has evaporated,” he said.

In the meantime, the association is using its surplus to gird against future storms.

Since 2019, it has invested $42.1 million into its roof fortification program for the Outer Banks and Barrier Islands. As of January, it had completed 7,518 fortified roofs with another 3,310 in progress.

Separately, it started a companion program for the state’s other coastal areas with $14 million. Another $40 million has been allocated, but it’s dependent on a dollar-for-dollar match for the 18 counties, excluding the Outer Banks.

Hornstein is pushing for the state to match funds. “Big picture,” he said, “losses are increasing. But if we can incentivize people living in homes that can weather the storm, then everybody wins. Insurance becomes more affordable.”

Or it doesn’t.

“The beauty of insurance,” said Raleigh-based industry lobbyist Joe Stewart, “is that it provides an immediate economic [response] to whether or not something is a good idea.” If you can’t get the coverage for it, maybe that’s the answer.

To learn more about North Carolina’s state-mandated insurance company, go here .

NC Reality Check is an N&O series holding those in power accountable and shining a light on public issues that affect the Triangle or North Carolina. Have a suggestion for a future story? Email realitycheck@newsobserver.com