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State Farm Seeks 47% Homeowners Insurance Increase

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By RUSSELL RAY | The Tampa Tribune

Published: July 16, 2008

Updated: 07/16/2008 07:27 pm

TAMPA - After lowering rates 9 percent this year, State Farm, the state's second largest home insurer, did an about-face Wednesday when it asked state regulators for permission to raise homeowners' rates 47.1 percent on average.

The private insurer, with nearly 1 million policies statewide, said it isn't generating enough cash to cover the claims that could result if a major hurricane strikes next year. In Hillsborough and Pinellas counties, State Farm has nearly 100,000 policyholders.

"Our current rates are inadequate and must change," said Michael Grimes, a spokesman for State Farm Florida. "We're making this filing so we can continue to do business in Florida."

If approved, the higher premiums would take effect in March 2009. A public hearing on the company's proposal will be held Aug. 12 at the state Office of Insurance Regulation in Tallahassee.

State Farm's request for higher rates comes after state regulators earlier this year rejected Allstate's proposal to boost rates as much as 43 percent.

OIR spokesman Ed Domansky said the state agency is reviewing State Farm's request to make sure it's in line with actuarial standards and that the requested rates are not excessive, inadequate or discriminatory.

State Insurance Commissioner Kevin McCarty and Gov. Charlie Crist, who pledged to lower insurance rates for homeowners during his 2006 gubernatorial campaign, could not be reached for comment.

"Commissioner McCarty remains committed to doing everything within his power to ensure that property insurance in Florida remains available and affordable," Domansky said.

State Farm struck a deal with Florida regulators last year to lower premiums 9 percent, on average, in 2008.

In 2006, though, State Farm won approval from regulators to raise premiums an average of 52 percent.

Next year, State Farm said it expects to spend more than $2 in claims and expenses for every $1 collected in premiums, assuming a major hurricane does not hit the state. The company paid out more than $4.4 billion in claims after eight hurricanes struck Florida in 2004 and 2005.

"State Farm must be able to charge rates that cover the expected costs of loss and operating expenses," Grimes said. "We must stabilize State Farm's financial condition in order to be able to pay our customers' claims, particularly those due to catastrophic events like hurricanes."

In January, State Farm began dropping 50,000 policyholders who live near Florida's coastline, citing the increased potential for losses resulting from a major storm.

State Farm's request comes after the Legislature and Gov. Crist approved in 2007 a $12 billion expansion of the Hurricane Catastrophe Fund, which provides backup insurance known as reinsurance to private insurers at a cheaper price than the private market. The measure was supposed to bring premiums down.

"The reinsurance from the cat fund is still available for this season and one more after that," Domansky said.

State Farm ranks just behind the state-run Citizens Property Insurance Corp., which has nearly 1.2 million homeowner policies.

Reporter Russell Ray can be reached at (813) 259-7870 or rray@tampatrib.com

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