State Farm staying in Fla. with caveats
The Florida Office of Insurance Regulation announced Wednesday it reached an agreement with State Farm to remain in the state. Under the agreement, State Farm will be allowed to drop 125,000 policies and implement a 14.8 percent across-the-board rate increase. State Farm had gotten approval in August from the state to modify, adjust or eliminate discounts to policyholders which amounted to as much as an 28 percent increase in premiums.
“A smaller, leaner State Farm in Florida is better than no State Farm at all,” said Kevin McCarty, commissioner for the Office of Insurance Regulation, in a conference call.
State Farm filed a plan in January to exit the property insurance market, a move that would have sent 810,416 homeowners looking for a new policy. The insurance company cited risks of impairment or insolvency as reasons it was moving toward a two-year exit strategy. State Farm’s plan to exit Florida also came after it was denied a 47 percent rate increase.
The 125,000 policies that will be dropped will be selected based on State Farm’s modeling for hurricane risk, said Belinda Miller, deputy commissioner for the Office of Insurance Regulation.
“We don’t have a list yet,” Miller said. “State Farm is going to provide a list to each agent within a reasonable time.”
State Farm will start issuing non-renewal notices on Feb. 1 to the properties it plans to drop, said Michal Connolly, spokeswoman for State Farm. Policy holders will have six months to find new coverage.
As for the 14.8 percent rate increase for all remaining property owners, Connolly said State Farm does not yet know when the increase will be implemented. The rate increase will impact 10,116 policy holders in Manatee County, and 15,701 in Sarasota County.
Jim Thompson, president of State Farm Florida, said in a news release the agency’s non-renewal plans and rate increase strategy were necessary due to State Farm Florida’s financial conditions.
“It helps stem State Farm Florida’s deteriorating financial condition,” Thompson said. “It reduces the company’s risk exposure. It moves us closer to rate adequacy. And for most of our customers it means that State Farm Florida continues to be there for them.”
But, Barney Bishop, president and chief executive officer for the Associated Industries of Florida, said the agreement is a temporary reprieve for the state’s “troubled” property insurance market.
“Over regulation of the industry has wreaked havoc on our ability to maintain a competitive market, stripped consumers of choices and hurt insurance companies’ ability to protect policy holders and get the rate of return to which they are entitled,” Bishop said.
The Associated Industries of Florida, which deems itself the voice of Florida’s businesses, is working to get the 2010 Consumer Choice Act passed this legislative session. The bill would allow private homeowners’ insurers to offer a rate the provider believers would fairly protect the homeowner. The business group believes the bill will make homeowners less reliable on Citizen’s Insurance as a result of insurers dropping homeowners, make competition more fair in the industry and will bring the private insurance market back to Florida.
“(Wednesday’s) announcement puts Florida back on a course that will stabilize our property insurance market, but we must continue to work on this important issue and make 2010 the year Florida consumers see their insurance options open,” Bishop said.
Bob Fowinkle, president of Moore Fowinkle & Schroer Agency in Bradenton, said the state had to back down after considering the consequences to state-run insurer Citizens if State Farm left the homeowner market.
“They (the state) was concerned about where all the people were going to go to if State Farm goes, a lot of them would have been dumped into Citizens, which would increase the liability for the state,” he said. “When the reality hit with how many and how much, they got in there and worked it out with them behind closed doors.”
Ronnie Grubbs, a former State Farm agent, who now has his own independent agency Ronnie Grubbs and Associates in Bradenton, is glad an agreement has been reached.
“There would have been a great void if State Farm had stepped out,” Grubbs said.