Other insurers poised to pick up State Farm’s slack

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PALM BEACH COUNTY, Fla. – Feb. 17, 2009 – For 700,000 homeowners covered by State Farm Florida, the departure of the state’s largest private home insurer might not be as financially painful as feared.

Florida Insurance Commissioner Kevin McCarty said Friday he’s negotiating with 15 insurers that want to take over State Farm Florida’s homeowners policies, and those carriers are interested in covering 50,000 to 500,000 policies each.

“We’ve got private companies that are ready, willing and able to take these policies,” McCarty said.

That’s a relief for homeowners who feared their coverage would move from State Farm to state-run Citizens Property Insurance Corp., which traditionally has charged the highest rates in Florida, although a rate freeze has held down Citizens’ rates in recent years. McCarty approved State Farm’s Jan. 27 request to pull out of Florida – but only if State Farm doesn’t dump those policies into Citizens.

“Most of the policies will be able to be placed in the private sector at rates at or below Citizens’,” McCarty said.

McCarty wouldn’t name the carriers he’s talking to. Smaller carriers such as Ormond Beach-based Security First Insurance have said they aim to add customers dumped by State Farm.

Florida Peninsula Insurance of Boca Raton is talking to McCarty about taking on 100,000 policies, Chief Executive Roger L. Desjadon said.

“We are a Florida-focused company, and we think that if you do the business correctly, you can do it very successfully in this state,” Desjadon said.

But Bill Newton, executive director of the Florida Consumer Action Network, doubted that State Farm’s exit would be as seamless as McCarty suggested.

“It’s a bit of a stretch,” Newton said. “If you could smoothly transition the policies with no bump, great, but I don’t think you can do it.”

Citing hurricane risk and steep losses, State Farm said last month it would drop 1.2 million Florida policies, including 700,000 homeowners policies, 80,000 condo unit owners policies and 94,000 personal liability umbrella policies.

McCarty on Friday approved State Farm’s plan, with caveats. It’s unclear whether State Farm will agree to the conditions set by McCarty. One of those conditions: that State Farm’s so-called captive agents be allowed to sell homeowners policies written by other carriers. Now, State Farm agents can arrange policies only through State Farm and Citizens.

“We’ll need to study the (Office of Insurance Regulation’s) opinion more closely, but we do appreciate its quick consideration of the plan,” State Farm said in a statement. “We hope to have further conversations with the OIR to create an orderly process that is best for our customers, our agents and the marketplace.”

Insurance experts lauded McCarty for taking steps to keep Citizens’ already bulging policy rolls from growing. Citizens has 1.1 million policyholders.

“Citizens is already overtaxed with the policies they have,” McCarty said.

Not only are Citizens’ prices high, but any losses could be absorbed by taxpayers.

“The more policies that are in Citizens, the more taxpayers are on the hook for potential losses,” Citizens spokesman John Kuczwanski said.

State Farm Florida has 54,000 homeowners policies in Palm Beach County, 5,900 in Martin County and 12,700 in St. Lucie County.

State Farm also is Florida’s largest auto insurer. Its life insurance and 3 million auto policies won’t be affected by the move, despite a 2007 Florida law that prevents carriers from selling auto coverage but not homeowners policies if they sell both types of coverage in other states.

State Farm is getting around that law by moving its auto policies into State Farm Mutual Automobile Insurance Co., a national carrier that sells only auto coverage.

McCarty talked tough during Friday’s news briefing. He said state regulators and politicians weren’t to blame for State Farm’s departure. Instead, he called State Farm’s losses “a crisis created by the company.”

And McCarty said State Farm broke its promise to stay in Florida if regulators approved a 52 percent rate hike in 2006.

“They said they would stay and commit to Florida with a 52 percent rate increase,” McCarty said. “We certainly got a lot of heat from policyholders for approving that increase.”

Not everyone is convinced that State Farm will leave. Newton, of the Florida Consumer Action Network, compared the showdown to a poker game where both sides are bluffing.

“The other shoe is yet to drop,” Newton said. “It’s hard to believe they would just walk away from that much business.”

But Florida Insurance Consumer Advocate Sean Shaw said both sides have been playing their hands too convincingly for State Farm to stay.

“They’re pretty far down the line to be bluffing at this point,” Shaw said. “We’re past the showdown phase and onto a new hand.”

Poker game or not, State Farm Florida’s departure is a dramatic example of the turmoil that has gripped Florida’s homeowners insurance market since Hurricane Andrew struck south of Miami in 1992. The barrage of hurricanes that hit Florida in 2004 and 2005 deepened the insurance crisis.

Since Andrew, insurance prices have soared. State Farm, for instance, has increased rates 530 percent since 1992, McCarty said, and hundreds of thousands of policyholders have been dumped by private insurers into Citizens.

 

Source: http://www.floridarealtors.org/NewsAndEvents/n2-021709.cfm