Can Florida’s little guys replace State Farm?

Orlando Sentinel–February 5, 2009

Anika Myers Palm | Sentinel Staff Writer

What State Farm sees as a burden, other Florida insurers view as an opportunity.

As word spreads that the state’s largest private-sector property insurer intends to drop its 1.2 million policyholders within the next two or three years, other companies are already angling to attract State Farm refugees.

Those companies are far smaller and less well-known than State Farm but say they have competitive prices, financial stability and local knowledge of the market in their favor.

“Many are ‘tried and tested,’ having been through the storms of 2004 and 2005, and understand the dynamic Florida homeowners-insurance market,” said former state deputy insurance commissioner Lisa Miller, now a consultant for financial-services companies, including some small insurers.

State Farm Florida Insurance Co. announced Jan. 27 that it no longer will provide liability or damage coverage for homes, condos, commercial properties, personal goods or boats because of regulators’ refusal to approve higher premiums. Without more money from policyholders, the company said, it would be unable to pay claims by 2011 and could face insolvency. It said it will continue selling auto, life and health-related insurance.

Some State Farm property-insurance customers already are looking for alternatives, other insurers say.

“I think some consumers are upset,” said Robert Ritchie, chief executive officer of American Integrity Group, a Tampa insurer that says it has been getting calls from State Farm customers and could take on as many as 50,000 new policyholders.

Pre-screened customers

State Farm’s policyholders are especially desirable to these smaller insurers because they constitute a customer base already screened and selected by one of the nation’s biggest companies.

“It’s well underwritten, it’s spread around the state, and State Farm has been shedding some of its higher-risk areas,” said Locke Burt, CEO of Security First Insurance, which hopes to pick up about 50,000 State Farm policyholders.

Security First already has created a replacement-coverage program especially for State Farm customers. Burt said many could expect lower premiums with his Volusia County company, which started offering policies in 2005.

Another company, Edison Insurance, has put a special message for State Farm policyholders on its Web site. CEO David Howard said the St. Petersburg insurer is offering policies that cost about the same as those sold by State Farm Florida.

“Based upon our growth pattern, we could pick up about 20,000 to 30,000 [policies],” he said.

Orlando-based Olympus Insurance Co. is not doing anything special to attract State Farm customers, but it could pick up as many as 150,000 policies — “assuming that we could get a proper distribution geographically” to manage exposure in high-risk coastal areas, Olympus President William Lowry said.

Although not nearly as well-known as industry giants like State Farm, Allstate and Nationwide, companies such as Olympus say they know the state well and are ready to take on a larger customer base in the nation’s most hurricane-prone state.

“We’re the people that live here in Florida, the people that are still your neighbors,” said Burt, whose company is based in Ormond Beach.

State Farm Florida, with headquarters in Winter Haven, is a unit of State Farm Mutual Automobile Insurance Co. of Bloomington, Ill.

Money in till needed

A company seeking to sell property insurance in Florida must prove to the state Office of Insurance Regulation that it has enough money to pay its claims following a disaster such as a major hurricane. The state’s financial requirements usually begin at $5 million, or 10 percent of a company’s liabilities, but then rise based on the number of policies the company issues.

Jim Graganella, CEO of Tallahassee-based Capitol Preferred Insurance Co. and Southern Fidelity Insurance Co., said the two companies combined could take on about 100,000 State Farm customers, which would double the companies’ client base. Graganella said the insurers are changing their Web sites to welcome State Farm customers.

State regulators have 90 days in which to review State Farm’s request to withdraw its property coverage in Florida. The company then has to give customers six months’ notice of cancellation.

“We are in some uncharted waters, both in the economy and what’s happening with State Farm,” Graganella said.