Beyond Last Resort
North Carolina’s coastal insurer invests directly in risk reduction, with lessons for other states.
Damaged and destroyed homes in North Carolina a day after Hurricane Dorian swept along the state's coast
It is time to rethink what we can and should expect from state-created insurers.
Climate change has altered the type, frequency, and severity of hazards that impact homes throughout the country. Homes not built to withstand these hazards are riskier to insure, and private insurers are responding by rapidly raising rates or declining to provide coverage altogether. In most states, homeowners who cannot find insurance on the private market can turn to state-created insurers, often called Fair Access to Insurance Requirements (FAIR) plans; residual markets; or insurers of last resort. These plans provide a mechanism for private insurers operating in the state to collectively share financial responsibility for properties they deem too risky to insure. Rapid growth in these plans is a warning sign of an insurability crisis taking hold in a state.
Sustainable solutions to address today’s insurance challenges must address the physical risks that are making homes harder to insure. Because state-created insurers are established by state law, states can define their role not only as market backstops but also as drivers of risk reduction for the high-risk homes they cover.
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These investments have numerous benefits. Through reforms that enable direct investment in cost-effective risk reduction, state-created insurers can:
- Reduce their own financial exposure to losses from covered perils
- Improve the insurability of the state’s highest-risk properties
- Support the health and stability of the state insurance market
- Preserve local and state tax bases and reduce public expenditures for debris removal and temporary housing after disasters
- Accelerate the growth of a local contractor workforce that is trained and certified in disaster-resilient building standards
- Most importantly, reduce physical damage to homes and protect the families who live in them
The North Carolina Insurance Underwriting Association (NCIUA), the state’s coastal insurer of last resort, shows what this can look like in practice: Since legislative changes restructured its financial foundation in 2009, NCIUA has invested more than $137 million to strengthen more than 21,200 homes against hurricanes and severe storms, pioneered first-of-its-kind resilience features in reinsurance and catastrophe bonds that could provide up to $8.425 million in 2027 for its roof programs, and partnered with a local green bank to finance low-interest loans for qualifying FORTIFIED roof costs that exceed their grants.
Beyond its investments in risk reduction, NCIUA presents a different model for how to deliver coverage when the private market pulls back; one that provides coverage similar to the private market, allows property owners to freely enter and exit the plan, and settles claims quickly and fairly.
NCIUA’s success is replicable. This report argues that state-created insurers can serve as both market stabilizers and drivers of risk reduction but only if they are designed and managed to do so. This requires a new way of thinking about these plans and their purpose, updated for today’s insurance challenges. North Carolina’s experience suggests that insurers of last resort can be more than a backstop for private market retreat; they can become a bridge to what we all must be working toward—more resilient, more insurable homes.
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