Our views: No to State Farm
Giant insurer doesn’t merit easy exit from Florida market
March 14, 2009
State Farm Insurance plans to leave 1.2 million Florida customers in the lurch by dumping their property policies by 2011.
That includes about 34,000 policyholders in Brevard County, who learned in January the insurer was pulling out after the Office of Insurance Regulation refused its request for a mind-numbing 47 percent rate increase, despite three mild hurricane seasons.
And State Farm wants the state to grease its exit so it feels no pain, filing an appeal March 6 objecting to withdrawal requirements ordered by the OIR.
Regulators should stick to their guns.
The exit requirements for State Farm are justified because they’ll ease former policyholders’ transition to a new carrier and minimize new risks to Florida’s economy.
Here’s what State Farm wants to dodge:
A mandate they let their agents, now restricted to selling State Farm lines, write homeowners’ policies with other private companies.
That’s a fair deal for agents, helping them earn some commissions even though their employers’ misguided strategies will ultimately cost them clients.
And it will help spur competition to keep rates reasonable among the 26-plus new companies that have come into Florida’s property insurance market since 2006.
Insurance Commissioner Kevin McCarty says the state should do whatever it can to “maximize the private market that’s ready, willing and able” to fill the void left by big insurers like State Farm, and he’s right.
A prohibition against switching the policies it’s shedding into state-run Citizens.
Citizens, meant to be an insurer of last resort, is bigger than any private insurer in Florida, with 1.3 million policies. Worse, it’s short on reserves to cover claims if bad storms hit.
That puts the state — and all policyholders — on the hook for higher assessments when that day inevitably comes.
Florida Chief Financial Officer Alex Sink correctly says Citizens needs to be downsized to reduce the state’s fiscal risk from storms.
State Farm shouldn’t be allowed to use it as a convenient dumping ground.
Keep in mind the insurance giant wants to continue selling other highly profitable lines of coverage, such as for automobiles, while abandoning homeowners who’ve paid premiums faithfully for years.
That hasn’t earned the company any sympathy from Florida residents.
As for State Farm’s claim it’ll become insolvent without the huge rate increase denied by OIR?
Parent company State Farm Mutual made $5.1 billion profit in 2007 and has raked in high profits the past five years, despite destructive hurricanes in 2004 and 2005.
And don’t buy the argument overregulation by state government is to blame for State Farm’s problems.
Florida Administrative Law Judge Daniel Manny shot that down in January, saying State Farm’s rate hike request was rigged with “sham transactions” and “economic distortions” to hide real numbers on profits.
The company refused to play by the rules and now should pay the penalty. McCarty and the OIR set the right terms for State Farm’s ignoble exit, and should stick to them.