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Fasano Considers Insurer Legislation

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By CARL ORTH

The Suncoast News

Published: January 31, 2009

NEW PORT RICHEY - At least one infuriated lawmaker thinks State Farm should buy the farm as a Florida company if it goes through with its announced pullout from the property insurance market.

State Sen. Mike Fasano is considering legislation that would bar State Farm from selling any other type of insurance in the state if it drops property insurance policies in Florida.

"They should be ashamed of themselves," Fasano, R-New Port Richey, said this week, referring to State Farm executives.

The company announced Tuesday it wants to withdraw gradually from the Florida property insurance market after state regulators denied its 47 percent rate increase overall. Executives say State Farm needs the extra money because of the threat of hurricanes and other factors.

"Faced with steeply declining resources to cover future claims and expenses, State Farm Florida has little choice," Jim Thompson, president of State Farm Florida, stated in a news release. The company underwrites about 1.2 million residential insurance and other related property insurance policies from its Winter Haven headquarters.

"We tried everything possible to avoid this decision," a State Farm Florida spokeswoman, Michal Connolly, said Wednesday during a telephone interview.

"Simply put," Connolly said, the company has been paying out $1.21 for every $1 collected in premiums. "Anyone can do the simple math."

Anti-'Cherry-Picking' Bill

But State Farm wants to continue to offer auto, life and health insurance, among other products, under the umbrella of State Farm Mutual Automobile Insurance Co.

Legislation to prevent such "cherry-picking" among insurers is gaining momentum, Fasano said. A company would have to offer all its types of insurance if it wants to do business in Florida.

Fasano, now the Senate's president pro tempore, introduced the anti-cherry-picking bill last year, but it didn't go anywhere. He re-introduced the bill for the 2009 regular legislative session, which starts March 3.

The 2008 version of the cherry-picking bill would have applied the rules only to new insurance companies entering the Florida market.

Fasano also backs limits on insurers to forbid them from canceling more than 2 percent of existing homeowner insurance policies in any given year.

Citizens Property Insurance Corp., the state's insurer of last resort, could not handle an influx of former State Farm homeowner insurance policyholders, Fasano said. State Farm officials said they currently cover 703,000 homeowners in the state.

"They can cry and whine, but the bottom line is nationally they are making billions of dollars in profits," Fasano said about State Farm. He complained that some State Farm Florida customers were facing rate increases as high as 90 percent.

After Hurricane Andrew in 1992, Florida allowed national insurance corporations to spin off their Florida operations into separate subsidiaries. The state calls such subsidiaries "pup companies."

The insurers said the subsidiaries were needed to limit their exposure to catastrophic hurricane damage in Florida.

Fasano said he thinks the subsidiary law lets its State Farm Florida unit plead poverty even as the Illinois-based parent corporation thrives. Gov. Charlie Crist also has spoken out against subsidiaries.

"I don't think anybody can predict what will happen" on legislation, Connolly said.

State Farm Florida was established in 1998 as a stand-alone company, according to Chris Neal, the company's public affairs manager. After billions of dollars of losses from a series of 2004 storms, State Farm Florida was able to continue to operate only by borrowing $750 million from State Farm Mutual. State Farm Florida has not been able to repay the loan.

The State Farm Florida plan must be reviewed by regulators, so the company has submitted a two-year plan that seeks to limit disruptions for customers, Neal said. If approved, the State Farm plan would allow policyholders time to find coverage with other insurers.

Scott Wallace, president, chief executive officer and executive director of Citizens, urged people with State Farm Florida property insurance coverage not to wait. Citizens writes policies only for residents who can't get private coverage.

State Farm customers may contact the Florida Market Assistance Plan at www.fmap.org or by calling 1-800-524-9023, Wallace stated in a news release.

"FMAP helps consumers find coverage with agents that represent carriers actively writing in Florida," Wallace said. "For those who are unable to find coverage in the private market, Citizens will be there."

Few Options In Pasco

In Pasco, about the only option remaining is Citizens, according to Shelita Walden Stuart, who runs Walden Insurance Network, an independent agency in Port Richey.

"It's not good for Florida," Stuart said of State Farm Florida's exit from the state's property insurance market. The bulk of State Farm policyholders in Pasco will wind up with Citizens coverage, she said.

Even HomeWise Insurance, one of the few private companies writing policies in Pasco, is pulling out, Stuart said. Tampa-based HomeWise informed her that the firm had stopped writing new policies and probably will cancel existing policies over time, Stuart noted.

"We don't have a lot of options here," she said.

Scott Black of Most & Black Agency in Dade City said there are a few companies writing policies in Pasco, but most are not higher-profile or big-name companies.

State Farm Florida's president expressed regret. "This is not an action we wanted to take, but one we must take given the realities of the Florida property insurance market," Thompson stated in a news release.

The company saw its surpluses reduced by $201 million during the first three quarters of 2008, a year in which there was relatively modest catastrophe impact and no major hurricane hit the state, Thompson argued.

State Farm Florida ran full-page advertisements in daily newspapers Wednesday explaining its decision to withdraw from the Florida property insurance market.

The National Association of Insurance and Financial Advisors Florida also offered its perspective through a news release from spokesman Bob Lotane.

"Right now our thoughts and prayers are with the State Farm agents," Lotane stated.

"Unfortunately this was quite predictable," Lotane said, referring to the State Farm pullout. "The companies that largely rebuilt this state after the devastating 2004-05 hurricane seasons have largely been reduced to political punching bags."

Fasano, however, thinks Florida must "send a clear message to State Farm" in the form of the restrictions on insurers he is proposing.

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