News & Updates


State Farm’s exit leaves Florida insurers and state scrambling

By Zachary S. Fagenson

As State Farm Insurance Co. prepares to leave Florida’s homeowners insurance market, the state and the insurance industry say they’re doing all possible to keep the insurance giant’s 1.2 million policies out of the state-run pool.

Florida Insurance "Commissioner [Kevin] McCarty has said there is an appetite in the private market for this business," said Tom Zutell, deputy director of communications for the Florida Office of Insurance Regulations. "If this is all done in waves, [it] will be a lot easier to integrate cancelled policies than if State Farm says it’s canceling them all in the next six months."

But State Farm’s two-year withdraw program has been put on hold due to a dispute between it and the state over how to get rid of policies.

Both parties hope to resolve the issue at an Oct. 12 hearing in Tallahassee. 

Mr. Zutell said many insurance companies that pick up policies from the state-run Citizens Property Insurance Corp. have put those "takeout" programs on hold while state and State Farm iron out a final agreement.

"State Farm had originally decided that it would dump all [of its] policies into Citizens and let takeout companies remove them," he added.

The state is fighting to keep those policies out of Citizens, which recently approved a 10% rate hike to cover a $1.8 billion gap.
Mr. Zutell did acknowledge that a share of the 1.2 million policies will end up in the state-run program but said the state’s goal is to make sure the majority stay in the private market.

And it seems the industry is on the same page as the state.

"Another thing Commissioner McCarty said before the [state’s] financial services commission is that the Office of Insurance Regulation is working with several insurers to take on huge chunks of the State Farm’s business," said Sam Miller, executive vice president of the Tallahassee-based Florida Insurance Council.

State Farm first announced plans to stop offering and renewing homeowners insurance in January. Damages from 2004 hurricanes cost the company billions and forced it to borrow an added $750 million to cover its obligations.

Recently, State Farm said state-mandated discounts, which are given for such home improvements as impact-resistant glass, have hindered its ability to stockpile enough capital to cover its obligations. 

Commissioner McCarty this year struck down the Bloomington, IL-based insurance company’s request for a 47.1% rate hike. But this month insurance regulators provided the company some relief when they eliminated discounts for having a home and auto policy with State Farm and for having "home alert protection." The total move, according to regulators, increased State Farm’s rates by 28.4%
And despite the risk of insuring property in hurricane-prone Florida, many companies are eyeing the policies State Farm leaves behind, according to Gisela Castro, an insurance specialist for realtor Esslinger Wooten Maxwell.

"The policies with State Farm are clean, nice policies any company would want to take over," she said. "These companies can probably come in at the same rate as State Farm."

Although the new insurers won’t need to charge higher rates to cover past losses, Ms. Castro noted that newer companies might not offer State Farm’s level of coverage.

She cited loss-of-use coverage, under which a company covers the cost of housing while a policyholder’s home is under repair, as one area where companies may differ.

"State Farm has a 12-month limitation and has no dollar limit" on its loss-of-use coverage, she said. The new policies "will have less broad coverage [but] they won’t have a 40% [rate] increase."

Mr. Miller of the Florida Insurance Council, meanwhile, said whether the excess policies will go to Florida-based insurers and what rates insurers end up charging remains uncertain.

But if State Farm’s policies do end up with Citizens and new companies end up using the takeout program to acquire them, state regulators will first have to approve rates.