News & Updates


Effects of State Farm’s pullout

First, let me say that I would prefer State Farm remain in Florida to write homes, dwellings and commercial property, even though our agency is benefiting by writing policies for State Farm customers that are now being forced to move. I know several State Farm agents. They are honest, hard workers who care about their clients so I am sad to know the hardship they face, which is due to no fault of theirs. However, I do not blame State Farm for pulling-out. 

So, I would like to communicate some of the reasons, especially for those of you who may have hostile feelings toward State Farm, and then touch on the effects for all of us.

In simple terms, insurance is a “pot of money” into which policyholders pay money. Those who have losses or claims take money out. Insurance companies need to be profitable so they can pay claims that will increase over time (due to inflation and increasing strength of natural disasters, such as hurricanes).

For example, in 2006 dollars, insured losses from United States catastrophes have ranged from $3.3 billion in 1997 to $64.3 billion in 2005. They did go down to $9.2 billion in 2006. Nevertheless, companies have to pay attention to their surplus (money available to pay claims), as when a big storm comes, a lot of big checks get written in a hurry.

State Farm, as well as all admitted insurers in the State of Florida, is subject to regulation by the State of Florida, Department of Financial Services (specifically the Office of the Insurance Commissioner, within that Department). This includes getting approval for premiums to be charged for policies as well as getting approval for the policy language itself, which dictates what is and is not covered. However, for years, the Insurance Commissioner’s office has been a “bottleneck” for insurance companies seeking to do business in Florida. Insurance companies have to submit their “rate filings” and “policy filings” to the Insurance Commissioner. The process is much too slow (due to delays in Tallahassee) and the extent to which rate increases are allowed are very often inadequate, causing insurance companies to go through an appeal process.

This creates less than a favorable environmental climate for insurers. State Farm has had enough and is leaving Florida; other companies already left.

The Insurance Commissioner’s office performs important functions, to make sure rates are not excessive (too high or too low) and to make sure policies are fair and reasonable in terms of coverage. So, I am not saying let’s “throw the baby out with the bath water.” But, there is too much “bath water.”

If the Insurance Commissioner would encourage a “free market” approach to allow companies greater latitude as to how much they wish to charge for premiums, many more insurers would come to Florida and the effect would be lower premiums for us all.

But, with a large company, like State Farm, leaving and the adequacy of the “Florida Hurricane Catastrophe Fund” being in question, there are not enough insurance companies left that are collecting adequate premiums to pay the claims for the next hurricane season (when we have 4 or more as we did in 2004).

The legislature is aware of the “Florida Hurricane Catastrophe Fund” issue and is considering steps to address it. Perhaps, you may want to encourage your representatives in this regard as well.

Alden Weichel, with Bradenton Insurance, 1400 Ballard Park Drive, Bradenton FL 34205, can be reached at 748-0511.