[StBernard] State Farm pullout leaves Florida policyholders scrambling

[Westley Annis]

State Farm pullout leaves Florida policyholders scrambling
By RANDY DIAMOND

Palm Beach Post Staff Writer

Tuesday, January 27, 2009

Insurance giant State Farm said it's had enough.

The state's biggest private homeowners insurer, in a move sure to have
hundreds of thousands of Florida residents scrambling for a way to cover
their homes, said Tuesday that it is pulling out of Florida's rocky
homeowners insurance market over the next two years.

The announcement caught State Farm's 1.2 million policyholders, including
933,000 home and condo owners, by surprise - and in a tough spot. The
billions of dollars in claims paid out by insurers after the devastating
2004 and 2005 storm seasons has left many unwilling to take on new policies,
and others dropping customers altogether.

For many of State Farm's policyholders, that means they'll probably be
absorbed into state-sponsored Citizens Property Insurance Corp. and pay more
in premiums anyway.

State Farm, which stopped writing new homeowners policies in Florida last
year, said it was left with little choice but to abandon the property line
after state Insurance Commissioner Kevin McCarty made a final decision on
Jan. 12 to reject its rate-hike plan. State Farm had first asked for a 47.1
percent premium rate increase in July, but in December upped its request to
67 percent.

''If we had not taken these steps it would have resulted in our
insolvency,'' Jim Thompson, State's Farm Florida's president, said in a
phone interview. ''I regret this decision more than anyone. It's bad for our
customers, our employees and our agents.''


McCarty, who insisted that State Farm had not proven that it deserved a rate
increase, called the insurer's decision "disappointing news for Floridians."

But he said it did not come as a surprise. State Farm had publicly warned
for months that it would be forced to reduce its exposure in the Sunshine
State if insurance regulators did not approve its rate hike. 

And McCarty said State Farm filed a technical document with regulators in
December that indicated it might shed more than 650,000 policies.

Riskiest to be dropped first

According to the plan State Farm submitted Tuesday, it appears that its
54,000 Palm Beach County policyholders and others in South Florida will be
among the first to be dropped once the insurer starts non-renewals. The plan
calls for State Farm to drop 470,000 customers in the first year, with
residents in areas at highest exposure to hurricane damage being the first
to be non-renewed. 

State Farm, second only to Citizens in homeowners coverage, also has 5,900
customers in Martin and 12,700 in St. Lucie counties.

Still, not everyone was taken aback by State Farm's announcement Tuesday.

"They probably charge about the highest rates in the state anyway,"' Gov.
Charlie Crist said. "I think Floridians will be much better off without
them."

Bill Newton, executive director of the Florida Consumer Action Network, said
he believed State Farm was bluffing, using Tuesday's announcement to
persuade state insurance regulators to give it a rate increase after all. 

"It's a game of poker," he said, "and unfortunately they will probably win
and get a rate increase."

State Farm's Thompson said it was no bluff, however. Even if the insurer was
successful in its state court appeal of McCarty's rate-hike rejection, it
would not reverse its decision to leave. 

Property insurers, who have clashed with Crist, McCarty and state lawmakers
over rate increase denials, say State Farm's decision is another sign of the
deeply troubled Florida market.

"State Farm's move shines the light on the problems insurers have in the
most hurricane-prone place in the world," said Gary Landry, vice president
of the Florida Insurance Council. "The state refuses to give insurers
adequate rates."

Although several dozen property insurers have entered the Florida market in
the past three years, Landry said those firms would not have the financial
capital to take on large groups of new policyholders.

McCarty said he will carefully review State Farm's intended withdrawal plans
to ensure that it is in compliance with Florida law, and will explore all
legal options, as well.

"I will do everything within my power to protect Florida consumers from
unnecessary destabilization of the insurance market that this might cause,"
he said.

McCarty said the state Office of Insurance Regulation has 90 days to approve
State Farm's plan, and then the insurer must provide 180 days notice to
customers before any policies can be dropped.

Other coverage continues

State Farm said in a full-page ad taken out in several Florida newspapers
today, including The Palm Beach Post, that it will continue to offer life,
health and automobile insurance in the state.

The latter is despite a 2007 state law pushed by Crist to prevent insurers
from offering only lucrative auto coverage if they offer both auto and
homeowners in other states. That's because it appears that the law may not
apply to State Farm, Florida's largest auto insurer with more than 3 million
policies, according to Office of Insurance Regulation spokesman Ed Domansky.

He said State Farm has agreed to move all of its auto insurance business
into the State Farm Mutual Automobile Insurance Co., a national company that
sells only auto insurance. State Farm Florida is a stand-alone, Florida-only
entity created specifically to sell property coverage.

Thompson said that during the first three quarters of 2008, a year with
relatively modest catastrophe impact and no major hurricanes, State Farm
Florida saw its surplus reduced by $201 million.

State Farm Florida's capital stands at $622 million and Thompson said it is
losing about $20 million a month. If losses continued at its current pace,
State Farm would start running out of money to pay claims in 2011, he said. 

''State Farm Florida is a private company and must have adequate capital to
ensure financial stability,'' he said. 

''And it is our responsibility to our policyholders to provide a sound
financial framework for the coverages we offer."