Crist: Florida 'better off' without State Farm
Published: Thursday, January 29, 2009 at 9:26 a.m.
Last Modified: Thursday, January 29, 2009 at 9:26 a.m.
ORLANDO, Fla. — State Farm said Tuesday that it has had enough of hurricane-prone Florida and intends to drop all of its property-insurance customers during the next 2 ½ years, forcing about 1.2 million policyholders to find new coverage.
Citing its inability to win regulators' approval for higher rates, Florida's biggest private property insurer said it has filed a request with the state to pull all of its homeowners-insurance business and related product lines out of Florida.
"If we had not taken these steps, it would have resulted in an insolvency," said Jim Thompson, president of State Farm Florida. If the situation doesn't change, the company would be unable to pay claims by 2011, he said.
The company's action could trigger a flood of new customers for state-backed Citizens Property Insurance Corp. and place additional strain on the Florida Hurricane Catastrophe Fund, which critics have said does not have the resources to meet its responsibilities should a damaging storm strike the Sunshine State.
Florida Gov. Charlie Crist was dismissive of State Farm's announcement.
"They probably charge about the highest rates in the state, anyway. I think that Floridians will be much better off without them," the governor said. "My concern is that we have a good market for Floridians to get homeowners insurance, and as I have been informed ... about 30 new companies have come into the state" since January 2007, when the Florida Legislature revised the laws that govern property insurance and the hurricane-catastrophe fund.
State insurance officials said they have 90 days to consider State Farm's request to stop selling and servicing property insurance. State Farm said it would continue selling and servicing auto, life and health-related insurance in the state but would no longer provide liability or damage coverage for homes, condos, commercial properties, personal goods or boats.
Crist and Florida Insurance Commissioner Kevin McCarty have challenged insurers in recent years to lower their property-insurance rates. The companies have argued that such rate reductions have left them unable to handle the risks they take when insuring properties in the nation's most hurricane-prone state.
"Unfortunately, this was quite predictable. The companies that largely rebuilt this state after the devastating 2004-2005 hurricane seasons have largely been reduced to political punching bags," said Bob Lotane, spokesman for the Florida branch of the National Association of Insurance and Financial Advisors, which represents insurance agents.
McCarty on Jan. 12 issued a final denial of State Farm's request to raise its rates by more than 47 percent. On Tuesday, he described himself as disappointed but not surprised by the company's formal move to drop all property coverage in Florida.
"I will do everything within my power to protect Florida consumers from unnecessary destabilization of the insurance market that this might cause, and to ensure that Florida consumers are protected and have access to insurance at rates that are not excessive or unfairly discriminatory," he said.
State Farm customers worried about finding another source of liability and damage coverage should be able to find new policies on the private market, experts said Tuesday. But not all State Farm policyholders will wind up with other private-sector insurers, the industry warned.
"We need to acknowledge that, although the private market will pick up as much of this business as it can, a lot of it will wind up in Citizens (Property Insurance Corp.)," said Sam Miller, executive vice president of the Florida Insurance Council, an industry trade group. "Citizens may become massive."
Citizens, designed to serve as the state's insurer of last resort, already constitutes about 40 percent of the catastrophe fund's exposure should a major hurricane hit Florida. And the fund's ability to meet its financial obligations by marketing and selling bonds has already been hampered by the nationwide recession and troubled credit markets.
"There're a lot of good risks in State Farm's book of business that a lot of companies would like to get," said Lotane, the agents' association spokesman. But if some of the newer companies operating in Florida scoop up those customers and then turn to the state fund for reinsurance — the coverage insurers buy to spread their risk among other companies — it would add to the fund's growing financial burden.
State Farm Florida's financial problems go back to the 2004 hurricane season, when it was able to continue operating only by borrowing $750 million from its parent company, State Farm Mutual Automobile Insurance Co. of Bloomington, Ill.
Since that year — when four hurricanes hit Florida within a matter of weeks, leaving behind more than $40 billion in damage and killing 117 people — State Farm and the Florida Office of Insurance Regulation have been butting heads.
There were hints Tuesday that the company's attempt to withdraw from Florida will not go smoothly.
McCarty said regulators are already working with state lawmakers on legislation that would limit how many customers an insurer can drop in any one year to 2 percent of its policies.
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