Policy Documents

North Carolina’s Beach Plan: Who pays for Coastal Property Insurance?

December 1, 2008

North Carolina’s little-known Beach Plan imposes an enormous fiscal liability on the state. Intended largely to provide windstorm insurance for coastal residents unable to find coverage elsewhere, the Plan has grown to become one of the nation’s largest entities of its type. 

By its own accounting, the plan does not have the capacity to survive a once-in-six-years storm without imposing significant taxes (called assessments) on North Carolina residents and businesses. One study from an independent actuarial firm shows that North Carolina could face liabilities of up to $6.2 billion from the plan — a figure that’s almost certainly low.  In recent years, the Beach Plan has grown at a rate of roughly $1 billion a month, growth that shows no sign of stopping. 

The Beach Plan’s growth stems from deliberate public policy decisions rather than North Carolina’s physical environment. By nearly all accounts, neighboring Virginia faces a greater economic risk from hurricanes than does North Carolina, but that state’s equivalent plan imposes essentially no burden on the state or its taxpayers.

The risk of special taxes — assessments — from the plan could result in higher insurance costs for nearly all North Carolina residents, lead to a massive withdrawal of insurance companies from the North Carolina market, and cause fiscal turmoil throughout the state. One major company, Farmers, already has withdrawn from the North Carolina market because of the Beach Plan’s liabilities, and others may follow.  

The Beach Plan needs change, and, fortunately for the state, insurance commissioner-elect Wayne Goodwin seems committed to reform.  A credible plan for change would consist of effort — mostly undertaken by the Commissioner and Beach Plan Board — to stop the Beach Plan’s growth and stabilize it. Following these stabilization efforts, the legislature, commissioner, and board would do best to consider comprehensive reforms that would return the Beach Plan to its intended place as a true market of last resort for people who cannot find insurance anywhere else.