The Florida Office of Insurance Regulation pressed State Farm officials at a hearing last week to justify a recent filing for a 47 percent homeowners insurance rate hike, in a move that would nearly double the premium for policyholders with the worst windstorm exposures.
The filing seeks increases that vary by county–as low as 19 percent for Pasco (by the Gulf of Mexico), to as high as 88 percent in Flagler (which is on the Atlantic, and encompasses Daytona Beach).
According to State Farm's filing, the owner of a $300,000 home in Flagler would see an increase to $4,868 from the current rate of $2,583. In Key West, part of Monroe County, the premium rate on a $300,000 home–now $24,329–would increase 76 percent to $42,919.
State Farm Florida President Jim Thompson said the company needs to see an increase in rates, or its position in the state will be compromised. While the carrier is seeking a 47 percent average hike, he said, a 60 percent increase would actually be justified by conditions within the state.
Written premium per policy has declined by over 20 percent since January 2007, according to Mr. Thompson, who noted that the company recorded an underwriting loss in the second quarter of 2008.
He added that during periods when there are no catastrophe events, insurance companies should be able to set aside money for future disasters.
Two problems cited by Mr. Thompson were the cost of reinsurance, as well as recent legislation that mandates discounts for mitigation efforts to strengthen homes against storms.
State Farm's assistant vice president, pricing director and actuary, Kathy Popejoy, explained that the carrier 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 law.
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 granted for existing improvements, and not customers who had recent work done to protect their homes from wind damage, the carrier's representatives said.
However, 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 State Farm'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 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 compiled its request by taking three catastrophe models that are accepted in Florida and averaging the data from the trio. 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 regulators will reach a verdict on State Farm's proposal. He said the State Farm filing is "very large," and noted that OIR actuaries have been reviewing all of the relevant data.
Information from last week's hearing will now also be factored in, he added. "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.
For Table:
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.