News & Updates


EDITORIAL: Florida’s pushy neighbor

Palm Beach Post Editorial 

Thursday, August 06, 2009

One way or another, State Farm Florida is determined to make its property insurance customers pay more – a lot more.

Last fall, the company asked for a rate increase that averaged 47 percent statewide but would be higher in South Florida. Insurance Commissioner Kevin McCarty denied it as excessive. State Farm appealed to an administrative law judge, who also denied the increase. Then State Farm lobbied the Legislature to approve a bill that would allow Florida’s largest insurers to charge whatever they want. Gov. Crist vetoed the bill.

This is what happens when Florida lets insurers have ’pups.’ 

So now State Farm has announced that it will end discounts on many homeowner policies. Based on calculations by the Office of Insurance Regulation, the net effect statewide will be an increase of about 44 percent, or just about what the company tried to get last fall. We don’t consider that a coincidence.

At this point, State Farm is asking to end only those discounts that don’t need approval from regulators. State Farm, for example, wants to stop giving discounts to policyholders who never have filed a claim. Those are considered marketing discounts. State Farm would need permission from the Office of Insurance Regulation to end discounts for homeowners who protect their property by, say, installing hurricane shutters or a stronger roof. Florida law requires those discounts, and State Farm would have to produce a study to justify ending them.

But here’s the odd thing. When State Farm Florida didn’t get the rate request, the company announced that it would pull out of the property insurance market and dump nearly 1 million policies. If the company is leaving anyway, why is it dropping the discounts? "These changes will help slow the deterioration of State Farm Florida’s financial condition, improving its ability to meet its obligation to customers," said company spokesman Chris Neal. "The company’s net worth has dropped by over $300 million in the last 18 months."

Now we’re back to that matter of insurance company finances. When writing property coverage here, State Farm Mutual of Bloomington, Ill., becomes State Farm Florida. The state version, known as a "pup," got a 52 percent rate increase in 2006, after the storm-filled seasons of 2004 and 2005. Florida has had no serious storms since then. So, what’s the problem? State Farm has argued that the state-required discounts are too expensive, but State Farm isn’t seeking to end those.

Companies try to pretend that "pups" are separate from the parent company, but the judge who denied State Farm’s rate request scoffed at that idea. The finances are linked, and State Farm Mutual had a bad 2008, explaining that the main reason for the drop in net worth "was the $9.2 billion decline in the … stock portfolio." That and catastrophe claims outside of Florida caused the company to lose $542 million after making $5.46 billion in 2007.

So, State Farm Mutual needs money and intends to get it though State Farm Florida. The Legislature should end this silliness by getting rid of insurance company "pups."