State Farm To Drop Florida Rates, Refund $23 Million

State Farm has agreed to reduce homeowner rates 9 percent, as well as pay almost $23.3 million in customer refunds and $1.5 million in legal costs to the state of Florida, it was announced today.

In addition, the Florida Office of Insurance Regulation and Office of the Attorney General said the company agreed to cooperate with the OIR on further investigations "related to potential collusion between insurers, trade associations and rating organizations."

The agreement follows last month's announcement by Florida Insurance Commissioner Kevin McCarty that he had decided to expand a probe by the OIR into State Farm rate calculations and its plans to non-renew 50,000 policyholders. He said then that company executives would face two days of grilling at a hearing instead of one.

Those proceedings, which have now been cancelled, were scheduled after OIR issued wide-ranging subpoenas for information to State Farm Florida Insurance Company, State Farm Florida Fire and Casualty Insurance Company, and State Farm Mutual Automobile Insurance Company.

Under the agreement--which OIR said would save Florida policyholders about $23 million--State Farm Florida will reduce rates by an additional two percentage points. The additional reduction comes on top of the 7 percent rate decrease State Farm implemented in the spring for a total of 9 percent.

The rate changes were required of all insurers to account for new state legislation providing primary insurers with discount reinsurance from the Florida Hurricane Catastrophe Fund.

In addition, the OIR said State Farm has agreed to change its method for non-renewing 50,000 policies in coastal zones in Florida. The non-renewals, which were announced in July, will no longer be based upon whether policyholders purchase more than one line of insurance from the company, OIR explained.

State Farm, officials said, has also agreed to refund excess surcharges. The excess amount--$23.2 million, plus 5 percent simple interest ($115,890)--will be refunded to State Farm policyholders beginning in six months.

The insurer is also required, the announcement said, to begin a program of automatically notifying its auto policyholders that are eligible to transfer from State Farm Fire and Casualty Company to the less-costly State Farm Mutual Company. This action comes about as the result of a comprehensive investigation by the OIR and the attorney general's office, officials said.

State Farm is also required to pay the OIR $500,000 (as reimbursement for the attorneys' fees and costs associated with the matters settled in the agreement) and $1 million to the attorney general's office, payable to the Department of Legal Affairs Trust Fund (as reimbursement for the attorneys' fees and costs associated with the agreement, as well as to cover costs of administering the fund, and for use in continuing enforcement efforts).

"State Farm has reduced its rates and has agreed to stop business practices that the Office found objectionable," said Insurance Commissioner Kevin McCarty. "Our governor and our legislature required this by law, so I am happy to see that State Farm has reached this agreement for the benefit of its policyholders."

The company in a statement said the agreement is "a step in State Farm's long-term efforts to work with public policymakers to meet the needs of Florida's challenging homeowners insurance market. The agreement further demonstrates a genuine and revitalized spirit of cooperation between the OIR, the OAG, and State Farm to focus on the long-standing interests of the public and State Farm customers.

Joe Formusa, State Farm Florida Insurance Company president said, "State Farm wants to be part of the solution for our customers, the state and our company. This agreement moves us in that direction."

The settlement is available online at http://www.floir.com/pdf/StateFarmSettlement/Agreement10012007.pdf.

This article updated 1:35 p.m.