NU Online News Service, June 7, 2:08 p.m.EDT

State Farm Mutual Insurance Company said it plans to stophandling claims for the National Flood Insurance Program but willcontinue writing policies.

The Bloomington, Ill.-based insurer is the largest administratorof NFIP policies, serving over 800,000 customers nationwide–40percent of them in Florida.

Under the new system, State Farm agents will handle reports ofclaims for policies where State Farm provides homeowner's coverageas well as writes flood policies. But claims will either be handleddirectly by the Federal Emergency Management Agency or itsdesignee, according to Phil Supple, a State Farm spokesman.

State Farm said in a statement it is dropping out of the programbecause of numerous stop-starts to the program since 2002, andbecause procedural changes in claims handling are forcing it todivert too much of its resources to the program.

According to FEMA spokeswoman Rachel Racusen, existing customerswill not be affected by State Farm's decision. Both new andrenewing customers will be able to obtain federal flood insurancethrough a State Farm agent "or one of the other 90 insurers thatsell flood insurance through the National Flood Insurance Program"after the program is renewed.

"What's important to keep in mind is that homeowners will stillbe able to take the steps needed to protect their property fromdamage in the event of flooding or another disaster," she said inan e-mail statement.

FEMA said State Farm has 829,273 policies as of March 31. Thereare over 5.6 million NFIP policies as of May 3.

State Farm announced its new policy against the background ofanother lapse in NFIP authorization.

The House passed legislation on May 28, before it went into10-day recess, that reauthorized the program until Dec. 31, but theSenate will not act on extending the NFIP and other lapsed programsuntil later this week.

Without congressional approval, the NFIP cannot issue newpolicies, allow agents to change existing policies, or renewexisting policies.

A House Financial Services Committee bill reported out on April27 (H.R. 5114, the Flood Insurance Reform Priorities Act of 2010)would reauthorize the program for five years and makes otherchanges and reforms. Reforms include phasing in actuarially soundrates, eliminating subsidies, and increasing coverage limitsavailable to homeowners and businesses. The House could take up themeasure early this week.

Two other bills dealing with catastrophe issues also passed thepanel at that time and are awaiting House floor action.

In justifying its decision, State Farm said that servicing NFIPapplications and claims has had an impact on the company'sresources.

"Various procedural changes to the program have complicatedState Farm's participation," the company said. "Numerousreauthorization delays for the program have challenged our abilityto serve all customers' needs."

State Farm noted that since 2002, there have been 11 last-minutereauthorizations of the NFIP, and on four occasions the program wasallowed to lapse.

"These 'stop-start' situations require a large company likeState Farm to dedicate significant resources to coordinate numerouscommunications with customers, employees and its more than 17,000agents," the statement said.

Under the new policy, State Farm Fire customers' flood policieswill be transferred to the NFIP over a 12-month period after thecompany's current arrangement expires on Sept. 30, Mr. Supple said.Policyholders will receive notice at least 90 days prior to theirpolicy's expiration date, he said, adding that the transition isexpected to be completed by April 2012.

State Farm has also been seeking to disengage itself from areasin Florida that are hurricane-prone, deciding to continue toprovide homeowner's coverage in Florida only after a prolongedbattle with the state that resulted in a decision to reduce, ratherthan totally withdraw from the state.

But, the compromise allows the carrier to stop providinghomeowner's coverage from properties along Florida'shurricane-prone coastline. However, it currently is responsible foradministering flood claims in many of Florida's coastal areas.

The National Association of Professional Insurance Agents,responding to the news, blamed Congress for State Farm'saction.

In a statement, Rita Hollada, past chairman and current PIANational's representative to the Flood Insurance Producers NationalCommittee said the news about State Farm's action "does not come asa total surprise."

The program, she said, has "become the victim of an increasinglypolitical atmosphere in recent months and years" and its repeatedmanipulation by Congress affects "the certainty" of "a viableinsurance program…"