In the Event of a funding shortfall, what charge can the North Carolina Underwriting Association impose on policyholders?

The North Carolina Underwriting Association is permitted to impose a catastrophic recovery charge on policyholders when there is a funding shortfall. This charge can be up to 10% of the premium, which serves as a mechanism to generate additional revenue that can be used to cover losses that exceed the pool's available funding.

This approach helps maintain the financial stability of the association, ensuring that it can continue to provide coverage to high-risk areas or individuals that the standard insurance market might otherwise decline. By charging policyholders, the association can buffer against unforeseen disasters or significant claims that lead to a shortfall in funds, providing both protection for the insurer and assurance for policyholders that claims can still be met even in challenging circumstances.

In this context, the other options do not align with the established practices of the North Carolina Underwriting Association; for instance, a flat fee or full recovery of past premiums does not pertain to the recovery charges allowed within their framework. Additionally, the notion that funding shortfalls would be absorbed by insurers overlooks the mechanism in place to manage such financial gaps through these specific charges.