Like a Good Neighbor: State Farm Will Stay, Raise Rates
State Farm Florida Insurance Co. will remain in the Florida market after dropping 125,000 policies and receiving a 14.8 percent rate hike under an agreement reached Wednesday with state regulators.
Almost a year after the company announced plans to drop its nearly 1 million policies and exit the state, Florida Insurance Commissioner Kevin McCarty said an agreement had been reached with the company, the state’s largest private property insurer, that ends legal proceedings and ensures the company will remain a player in the state for at least another year.
“The agreement we reached, I think is beneficial to the people of the state of Florida, the policyholders of State Farm, State Farm insurance agents and the insurance marketplace as a whole,” McCarty told reporters in Tallahassee. “Most importantly, it will allow State Farm of Florida to be a substantial policy holder in the state of Florida and a significant market player.”
State Farm officials said the deal will allow them to continue offering policies in the Florida market by recognizing the company’s need to jettison riskier policies and raise rates to more adequately offset non-hurricane losses.
“This is an important step,” State Farm President Jim Thompson said in a statement. “It helps stem State Farm Florida’s deteriorating financial condition. 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.”
Major provisions of the agreement will allow State Farm to begin non-renewing policies beginning in August 2010. Notices will begin going out in February as state law requires insurers to give customers at least six months notice before dropping their policies.
Under terms of the agreement, the company will immediately be allowed to raise its premiums by 14.8 percent when policies are renewed. The increase will come atop additional premium hikes brought on by the company’s decision earlier this year to discontinue a menu of optional discounts that in some cases reduced rates by as much as 28 percent.
State Farm will also begin to allow its Florida agents to sell policies with other companies, releasing them from exclusive contracts that had been one of the most troublesome prospects for state officials – that State Farm agents would lose all their business because of the exclusivity.
State regulators say they are confident that many policyholders who are dropped will be able to find policies with other private insurers and not be relegated to Citizens Property Insurance Corp., the state-run insurance pool that now covers more than 1.1 million policyholders.
The consent decree between State Farm and Florida officials that was signed earlier Wednesday ends the company’s legal battle that began after Florida Insurance officials in January denied the company’s 47 percent rate hike request.
State Farm’s plan to exit the state was seen by insurers and many Republicans as illustrative of a larger problem – that efforts by government to keep rates affordable were threatening the marketplace by leading companies to want to leave the state.
A proposal by Sen. Mike Bennett, R-Bradenton, (SB 876, HB 447) and Rep. William Proctor, R-St. Augustine, likely to be considered by lawmakers in the coming year would allow insurance companies to raise rates without OIR approval. State regulators would still require insurance filings - and would be able to determine whether companies are charging rates that are high enough to allow the company to pay claims.
The proposal has been endorsed by Florida TaxWatch, Associated Industries of Florida and the Florida Association of Insurance Agents.
Proctor said Wednesday’s action would have no impact on his decision to press on with that legislation. Premiums in Florida, including those at Citizens, remain actuarially unsound and remain so regardless of State Farm’s decision, he said.
“We are going have to face the fact that insurance rates must be high enough to offset the risk involved,” Proctor told the News Service.
“Ain’t nothing changed,” by the State Farm deal, added Bennett.
Industry representatives applauded the deal but said the state’s insurance market problems continue to extend far beyond State Farm.
“Florida remains a very risky state for insurers,” said Sam Miller, a spokesman for the Florida Insurance Council. “These successful negotiations signal a positive step toward seeking well-conceived solutions that are best for consumers as well as the industry.”
Likewise, the Florida Chamber of Commerce said systemic reform is also needed and the bills offered by Proctor and Bennett help address that need.
“During the 2010 Legislative Session, we will continue to support solutions to create solvency, by again fighting for critical consumer choice legislation and reducing the exposure of Citizens Insurance Company and the CAT fund,” said Chamber President and CEO Mark Wilson.