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State Farm Ignores Slogan

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The Tampa Tribune

Published: January 30, 2009

It's one of the most memorable jingles ever conceived: "Like a Good Neighbor, State Farm is There."

But State Farm won't be here for Florida property owners if the insurance company has its way.

Since State Farm Florida failed to persuade state regulators to allow an outrageous 47 percent rate increase two weeks ago, Florida's largest private property insurance provider has decided to pull up stakes - potentially leaving some 1.2 million property insurance policyholders to find new coverage.

The insurance giant, of course, wants to continue selling more lucrative lines of insurance, such as auto and life, in the Sunshine State.

It's tempting to say good riddance to State Farm, which is exactly what Gov. Charlie Crist did. And maybe that is the appropriate response.

But regardless of what happens to State Farm, state leaders must do something to stabilize the property insurance industry. Further reforms or innovations are going to be necessary to end the year-to-year turmoil.

It's not as if the state has not tried. In the last two years the Legislature has given insurance companies everything they asked for to steady the marketplace and make it worthwhile for companies to sell policies here.

It worked to some extent. Smaller insurance companies have moved into the state and taken policies from Citizens Property Insurance Corp., Florida's insurer of last resort.

And yet the big boys of the insurance industry - the State Farms, Allstates, Nationwides - still want more. They refuse to write new policies. They claim they can't afford it.

Jim Thompson, State Farm Florida's president, says his company has to withdraw because without the rate increase, it will be insolvent by 2011. Maybe that's technically true, but the stand-alone "pup" company State Farm put in place here 11 years ago has a mother, State Farm Mutual Insurance Co., that's rolling in the dough.

Still, we know that Citizens will have to take in many of the State Farm rejects and that won't be good for Florida taxpayers.

Citizens charges rates that are artificially low to keep premiums affordable. But there is $412 billion at risk through Citizens, and property owners statewide would have to make up any deficit should a major hurricane strike.

The trouble for State Farm is that no one trusts the insurance industry. It's hard to believe it can't make any money in the fourth-largest state in the country, and one of the wealthiest. Yet the fact the company would abandon this lucrative market does suggest something is amiss, even if their financial situation is not as grave as they claim.

Crist and some lawmakers would punish State Farm by preventing it from cherry picking which insurance it would sell. Under their plan, if State Farm wants to sell auto and health insurance, it would have to sell property insurance, too, at least as long as it sells property insurance in other states.

The idea has appeal but also risk. State Farm may offer better rates for car owners - a plus for Florida residents.

Moreover, as Sen. Mike Fasano of New Port Richey points out, it's obvious the State Farms of the world don't want to sell property insurance. It could be they would give up selling that line of insurance everywhere.

So there are no easy answers. Certainly the state should not give in to State Farm's exorbitant demands. Regulators may be able to keep it from fleeing. And the company's threat may be a bluff.

But Fasano is working on two bills that merit close attention. One would limit the ability of a company to drop more than two percent of its policies in a given year. As he rightly points out, for State Farm to turn over a million-plus policies to Citizens and other private carriers would expose Citizens, and so taxpayers, to greater liability.

Another bill would create a state-wide windstorm pool, backed by the state, to which all property owners would have to belong. It would be administered by private carriers, which in theory would lower premiums. Private carries would be encouraged back into the property insurance market because, with the state selling hurricane insurance, they could stick with fire, theft and other more predictable coverage.

And for shouldering the risk, the state would share in the profits from windstorm premiums during uneventful hurricane seasons.

Fortunately, state officials say Florida's insurance market can absorb most of the policies that State Farm would drop.

If the state can't stop State Farm's departure, the company says it will start shedding its policies in nine months. The insurance crisis cannot be ignored. Lawmakers, now preoccupied with budget cuts, need to add another painful chore to the upcoming session.

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