Fla. Regulators Grill State Farm On 47% Increase Proposal

Jim Thompson, State Farm Florida president, said the company needs to see an increase in rates or its position in the state will be compromised. While the company is seeking a 47 percent increase, he said, a 60 percent increase would actually be justified by conditions within the state.

Written premium per policy, Mr. Thompson said, has declined by over 20 percent since January 2007, and the company recorded an underwriting loss in the second quarter of 2008.

He noted that during periods when there are no catastrophe events, the company should be able to set aside money for catastrophes.

Two problems that the company is experiencing, according to Mr. Thompson, are the cost of reinsurance and recent legislation that mandates discounts for mitigation efforts to strengthen homes against storms.

Kathy Popejoy, State Farm assistant vice president, pricing director and actuary, explained that the company had already accounted for some of the building code mitigation efforts in its data and had to give further discounts without a commensurate reduction in risk to comply with the legislation.

But regulators questioned State Farm's claim on that matter. The company's representatives were asked if any analysis had been done regarding whether discounts for mitigation efforts are for new improvements or existing ones.

The company's contention that it is giving two discounts for the same mitigation efforts would only apply to discounts given for existing improvements, and not customers who had recent work done to protect their homes from wind damage, they said.

Ms. Popejoy said she was unaware of any analysis that looked into when the mitigation efforts were undertaken.

Mr. Thompson and Ms. Popejoy said the wind mitigation discounts meant that the company only realized half of a 52 percent decrease that it instituted in 2006.

Mr. Thompson added that the company's need for a discount is greater now than it was in 2006. The filing, he said, is a step toward rate adequacy, and he pledged that any profits realized by the company would stay in Florida.

Regulators on the hearing's panel asked numerous specific questions regarding State Farm's filing and repeatedly asked the company's representatives to justify certain numbers or to explain why certain information requested by the OIR did not appear to be in the filing.

Questions of legality also arose. For example, State Farm utilized modeling data by taking three models that are accepted in Florida and averaging the data from all three. Regulators questioned whether the resulting numbers technically constituted a fourth, unapproved model.

Tom Zutell, deputy director of communications for the OIR, said there is no specific timeframe as to when the OIR will reach a verdict on State Farm's proposal.

Mr. Zutell said the State Farm filing is "very large," and noted that OIR actuaries have been reviewing all of the relevant data. Information from today's hearing will now also be factored in, he said. "A lot of the work has been done," said Mr. Zutell. "That's not to say that [actuaries] will render a quick recommendation to the commissioner, but they're not starting from scratch today."

He added that if the filing is denied, State Farm will have 21 days to petition that denial in the Division of Administrative Hearings. An administrative law judge will then make a recommendation to the commissioner. If State Farm is not satisfied with that judgment, Mr. Zutell said, the company can then go to the First District Court of Appeals in Tallahassee.