State Farm To Leave Florida Homeowners Insurance Market

State Farm, Florida's second-largest property insurer, announced last week it intends to pull out of the state's catastrophe-prone homeowners marketplace after its request for a 47.1 average rate increase was rejected by regulators.

A small competitor of State Farm issued a statement slamming the move as "disgusting." The critical comment from Mike Gold, chief executive officer of Boca Raton, Fla.-based Peoples Trust Insurance Company, was coupled with an announcement that he and Florida officials will shortly unveil a plan to fix the state's property insurance market.

State Farm Florida Insurance Company, headquartered in Winter Haven, Fla., said it currently services approximately 1.2 million residential insurance and other related property insurance policies.

State Farm said it had filed plans to discontinue its Florida property product lines because of its "substantially weakened financial position," related to its inability to obtain approval of "what it believes to be adequate property insurance rates."

Florida Insurance Commissioner Kevin McCarty on Jan. 13 had upheld an administrative law judge's ruling that State Farm had not proven its case for an increase.

"We will carefully review State Farm's intended plans to ensure that they are in compliance with Florida law, and we will explore all legal options as well," he said.

"It also is important that State Farm customers understand that the office must first approve State Farm's plan," he added. "The office has 90 days to do that. If approved, State Farm must then provide 180 days notice to customers before any policies can be nonrenewed."

He promised to do "everything within my power to protect Florida consumers from unnecessary destabilization of the insurance market that this might cause, and to ensure that Florida consumers are protected and have access to insurance at rates that are not excessive or unfairly discriminatory."

Mr. McCarty said his office has been working with state Sen. Mike Fasano, R-New Port Richey, to develop legislation to significantly limit the number of nonrenewals a company can issue in a year.

Mr. McCarty said that "to help ease the transition of policies, Florida already has new companies eagerly looking to grow their businesses, and will welcome the opportunity to add more customers."

Meanwhile, Mr. Gold of Peoples Trust said it "is absolutely disgusting what State Farm is doing, abandoning Florida homeowners after profiting for years on their policies."

He added that "if they don't want to partner with the state's consumers on property insurance, they ought to be good corporate citizens and get out completely. Our industry has specific customer obligations, and my feeling is they should be all in or out." According to Mr. Gold, his firm "charges roughly half of what State Farm collects for the same policy and still makes money."

Peoples Trust, he said, has "a catastrophe plan to help fix the system they claim to be unable to work in, which we'll unveil in a few weeks, that has the strong support of Florida Gov. Charlie Crist and Insurance Commissioner Kevin McCarty. It is the kind of creative thinking this industry desperately needs--something State Farm wouldn't or couldn't bring to the table."

Mr. McCarty's office did not immediately respond to a request for comment concerning Mr. Gold's statement that a new catastrophe plan would be announced in a few weeks.

As for State Farm, a company representative, Michal Connolly, said: "We don't necessarily have a response." Regarding Mr. Gold's comments that his firm can make money in the Florida property insurance market, she said she could not speak for another company, but that "our financial picture speaks for itself."

"This is not an action we wanted to take, but one we must take given the realities of the Florida property insurance market," Jim Thompson, president of State Farm Florida, said in a statement. "We regret the impact this will have on our customers, employees and agents in Florida."

Company operating costs, he said, "have risen as day-to-day claims have increased both in their number and severity. State-mandated discounts have further reduced needed revenues. During the first three quarters of 2008 (a year with relatively modest catastrophe impact and no major hurricane), State Farm Florida saw its surplus reduced by $201 million."

He noted that the state-created Citizens Property Insurance Company--Florida's biggest homeowners carrier--was also struggling with rate and surplus adequacy.

Scott Wallace, president and CEO of Citizens, said his company "will work with Mr. McCarty's office and other interested parties to facilitate a smooth transition of as many of these policies as possible to the voluntary market."

A financial analyst said State Farm's exit could help several insurers and a major broker in Florida. In an investor's note, Stifel Nicolaus analyst Meyer Shields said the political criticism that State Farm will suffer from its decision could benefit Allstate, which may attract "some disenfranchised State Farm customers," giving the company greater control over planned expansion there.

Another beneficiary, he said, could be Progressive, as former State Farm customers "seek lower-cost alternatives," either through independent agents or the Internet.

Also benefiting could be Daytona Beach, Fla.-based insurance broker Brown & Brown, as customers turn to the independent agent channel for coverage, he noted.

(Additional reporting by Mark E. Ruquet.)