Farmers Insurance confirmed it plans to pull out of the North Carolina homeowners insurance market because of the rapid growth of last-resort catastrophic insurance plans in the state.

It's decision means that more than 40,000 homeowners in North Carolina will have to scramble for new coverage starting Sept. 15. Farmers is the ninth largest homeowners' insurer in the state, a company spokesman said.

An industry expert on catastrophe issues, Eli Lehrer of the Competitive Enterprise Institute, immediately voiced concern after being informed of Farmers' decision, fearing that more insurers could follow and pull out of the state.

Jerry Davies, Farmers' director of media relations in Los Angeles, confirmed that the carrier will not accept new customers for insurance as of Sept. 15 and will not renew homeowners policies starting with Nov. 1 renewals.

Mr. Davies said the company determined to withdraw from the North Carolina market because the state has imposed three plans--Fair, Beach and Coastal--as insurer of last resort in an effort to reduce the cost of insurance coverage.

Mr. Davies explained that the company calculated that if losses exceed the financial capability of the plans, insurers will be assessed based on the percentage of homeowners business they have in the state and the amount of writing along the coast.

"The beach and coastal plans have been growing rapidly and the current value of risk to Farmers is almost double the annual premium collected from the policies now in force," Mr. Davies explained. "This is an untenable position for Farmers."

Mr. Lehrer reacted, saying that "this shows that North Carolina is turning into Florida."

He said the state's extremely burdensome regulatory system is causing enormous problems there. The efforts, he pointed out, effectively bring about "rate suppression."

The real concern, he continued, is that other carriers could follow.

"Unlike Florida, underwriting profits in the auto market are not enormous, and that makes the decision to pull out of homeowners insurance much easier," Mr. Lehrer said. As in homeowners coverage, "auto rates are not fairly determined."

As a result, he said, "there is not much incentive to stay in the state for the auto business alone."

A spokeswoman for the North Carolina Department of Insurance said, "They caught us by surprise, but they have a small market share and it won't create a huge ripple [in the state's market]. But we are sorry to see them go."

According to Highline Data, a Summit Business Media Company, which also owns National Underwriter, Farmers, which is managed by Zurich, is ranked as the ninth largest homeowners insurer in the state with more than $59 million in direct written premium and less than 4 percent of the market, based on 2007 reporting.

State Farm is the state's largest homeowners insurer with 19 percent of the market representing $314.2 million in direct written premium.

(This story was updated at 4:15 p.m. EDT)

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Farmers To Pull Out Of N.C. Homeowners Market

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