State Farm wants to drop homeowners insurance in Florida

State Farm plans to stop writing property insurance in Florida,

dropping 1.2 million policies. It says the business is a money-loser

Article Courtesy of The Miami Herald

By Beatrice E. Garcia
Published January 28, 2009

After selling property insurance in Florida for more than 60 years, State Farm Insurance plans to leave the business in less than three years.

Unless it can charge higher rates, the company says, its Florida unit will be insolvent by the end of 2011. The company claims it's hemorraging $20 million a month.

''If we have any further weakening of our financial condition, it would really hamper our ability to pay all of our claims going forward,'' said State Farm Florida President Jim Thompson. ``This is a very sad day for our company.''

The impact of State Farm Florida's drastic move goes well beyond the mad scramble of customers who own 1.2 million policies -- insuring homes, condo units, rentals, mobile homes, boats, liability and commercial property -- to find new insurers.

The company employs about 5,000 people in Florida. As many as another 5,100 work for its 850 agents in this state. In a 25-page document presented by State Farm Florida to state regulators Tuesday and obtained by the Herald/Times Tallahassee bureau, the firm said it had no immediate plans to cut staff.

However, State Farm agents would be unlikely to maintain their staffs if they could not write property insurance, which represents about 50 percent of their business.

Many regulators, legislators and policyholders were angry and dismayed that State Farm would pull out of the property business over losses and yet continue to write lucrative auto coverage. It also will continue to sell life insurance, annuities and financial services products.

Gov. Charlie Crist effectively bid State Farm ''good riddance'' when he heard of the company's proposed action. ''They probably charge the highest rates in the state anyway. Floridians will be much better off without them,'' the governor said in Tallahassee Tuesday.

''You can't just cherry-pick the lines you want to write,'' said State Rep. Julio Robaina, R-Miami.


Robaina was referring to a law passed two years ago that aimed to prevent insurers from keeping the money-making businesses and dumping the rest. However, the law has applied to few, if any, companies.

State Farm sells much of its auto policies through other units and through its parent company, State Farm Mutual Automobile Insurance.

Crist said he'd like to see the Legislature strengthen that law.

If State Farm doesn't want ''to partner with the state's consumers on property insurance, they ought to be good corporate citizens and get out completely,'' said Michael Gold, president of Boca Raton-based People's Trust Insurance, which is selling homeowners coverage directly to consumers via the Internet.

Marisel Sanchez Walston said her mother, who lives in Miami-Dade County, has been a 24-year State Farm policyholder whose premium has risen from $300 initially to about $1,800 for a 1,500-square-foot home.

If she can't find another insurer, ''I don't see any other option for my mother other than selling the house when the real estate market gets a little better,'' she said.

Losing coverage for State Farm policyholders wouldn't be immediate.

The Florida Office of Insurance Regulation has 90 days to review and approve or reject State Farm's plan. If it is approved, State Farm then has to give 180 days notice to those policyholders it plans to terminate.

In the documents submitted to OIR Tuesday, the company said approximately 470,000 policies would be eliminated in the first year.

Insurance Commissioner Kevin McCarty said in a statement that state insurance regulators had been hearing for months that State Farm was considering no longer writing property insurance in Florida.

The company in December outlined plans to the Florida Insurance Guaranty Association to cut 655,000 homeowners policies in Florida by 2010.

McCarty had denied a request by State Farm's Florida-only unit for an average 47.1 percent rate increase.

The insurer said its analysis of its risk and projections of losses actually supported a 67 percent increase. Besides needing higher rates, the company contends the higher costs of backup reinsurance plus higher-than-expected costs for credits to homeowners who stormproof their homes have eroded its financial stability.


State Sen. Mike Fasano, R-New Port Richey, is developing a bill for the upcoming legislative session that would limit the policies an insurer declines to renew to 2 percent of the policies on its books. To strengthen the insurance market, Fasano said he is also drafting bill that would create a statewide wind insurance pool. Private companies would write just property/casualty of a homeowners or commercial policy.

House Speaker Ray Sansom invited State Farm officials to come to next week's meeting of the House insurance, business and financial affairs policy committee next week to discuss the consequences of its proposed plan.

For its part, Citizens Property Insurance, the state-run insurer, is encouraging State Farm policyholders who will lose their coverage to shop around with agents who represent other companies.

Citizens, the largest insurer of homes and condos in Florida, has approximately 1.1 million policies on its books, with about half in South Florida. The company was initially created to be the insurer of last resort, but it has become more competitive in recent years as it has begun to write more than just windstorm coverage in the coastal sections of the state.

Agents such as Robert Reynolds, who runs the Morris & Reynolds agency in South Miami-Dade, said about a dozen smaller Florida-based companies such as Tower & Hill and Coral Insurance, are writing new homeowners policies.

National companies such as Allstate and Nationwide have reduced their business in Florida since the 2004 storms, citing the inability to raise rates and convoluted regulation.

Christian Camara, the director of the Competitive Enterprise Institute's Florida office, worries that other insurers will need to raise rates in the future if there are fewer and fewer companies willing to write policies in this state.