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State Farm Dropping Florida

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By RUSSELL RAY

rray@tampatrib.com

Published: January 28, 2009

State Farm, Florida's largest private property insurer, said Tuesday that it is getting out of the property insurance business in Florida because its premiums aren't high enough to cover claims.

The move comes two weeks after state regulators rejected State Farm's request to raise rates 47 percent statewide.

The insurance giant on Tuesday delivered to state regulators a detailed plan to drop more than 1 million homeowner policies over two years. More than half would be dropped in the first year, said Jim Thompson, president of State Farm Florida.

"If we had not taken this step, it would have resulted in insolvency," Thompson said during a conference call with reporters.

Thompson said the company is losing $20 million a month and would have run out of money to pay claims before the end of 2011.

"That's without a hurricane," he said.

The state's Office of Insurance Regulation has 90 days to review the plan. If it is approved, nearly 100,000 homeowners in Hillsborough and Pinellas counties will be forced to seek coverage elsewhere.

State Farm cannot drop anyone until regulators complete their review. Even then, the company is prohibited from dropping customers without six months notice. Under State Farm's plan, the company would begin dropping policies in late October.

"This is a very difficult day for State Farm," Thompson said. "It's bad for our customers, it's bad for our agents and it's bad for our employees."

The massive cancellation of policies includes coverage for home and condominium owners, renters, personal liability, boats, personal articles, and business property and liability. Those with auto insurance, life insurance and health insurance policies will not be affected.

However, State Farm's plan could unravel if the Legislature approved legislation authored by state Sen. Mike Fasano, R-New Port Richey.

Fasano said Tuesday that he plans to introduce a bill that would limit the number of homeowner policies a company could cancel to 2 percent a year.

A separate bill would prevent insurers from refusing to offer homeowners coverage if that coverage is offered by the same company in other states. Fasano said the law would retroactive and would include State Farm.

"We should stop the cherry-picking," Fasano said.

The cancellation of more than 1 million homeowner policies could deepen Florida's insurance crisis and is sure to increase the policy count at state-run Citizens Property Insurance Corp., Fasano said.

"The majority of them will wind up in Citizens, thereby increasing the liability on all of the taxpayers in the state," he said.

State Farm said operating costs have risen along with the number of claims. What's more, the insurer said state-mandated discounts for homeowners who strengthen their homes against hurricanes have slashed the company's revenues.

"If we had any further weakening, it would have really hampered our ability to pay claims," State Farm's Thompson said.
State regulators may have no choice but to approve State Farm's plan, as long as it complies with state law by satisfying the company's obligations to policyholders.

"We will be looking at everything very thoroughly to ensure that no State Farm customers would be adversely impacted by the plan, said OIR spokesman Ed Domansky.

Bill Newton, executive director of the Florida Consumer Action Network, said many insurers have entered the state and the insurance market should be able to absorb any policies dropped by State Farm.

"I think there is capacity to take up those policies," Newton said. "Those are some good customers. State Farm has an excellent book of business."

However, Newton suggested that Tuesday's action may be another step in State Farm's effort to reach a deal with state regulators.

"I think there may be something of a bluff going on here," he said. "I still think this is a poker game."

Reporter Russell Ray can be reached at (813) 259-7870.

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