EDITORIAL: State policy, not State Farm’s

Palm Beach Post--March 12, 2009

The Office of Insurance Regulation should not back down from its demand that State Farm not leave Florida hanging if the company leaves Florida.

On Friday, State Farm appealed the terms set by Insurance Commissioner Kevin McCarty for the company’s announced withdrawal from the Florida property/casualty insurance market. The 34-page appeal accuses regulators of almost everything except taxation without representation, but the company has two main gripes: The Office of Insurance Regulation wants State Farm to let its agents write coverage for other private companies, and the OIR has prohibited State Farm from dumping any policies into Citizens Property, the state-run insurer of last resort.

Mr. McCarty, though, had good reasons to set those terms. State Farm is the largest private property insurer in Florida, with about 1 million policies. Only Citizens, with about 1.3 million, is larger. The worst outcome would be for State Farm to dump all those policies, and for Citizens to absorb all of them. The Legislature is considering recommendations to raise Citizens’ rates because, critics say, the company doesn’t have enough money to pay claims from a bad storm or season. Everyone wants Citizens to shrink, not grow.

State Farm agents, like all agents, can write Citizens coverage. But it makes sense to let State Farm agents place customers with other private carriers; the agents could get commissions – if the companies can work out a contract – and the policyholders would get the easiest switch of coverage. Regulators report high anxiety among State Farm customers since the announcement in January, even though the cancellations would occur over two years.

State Farm no doubt worries that customers steered to other companies for homeowners insurance would take their auto business with them to get a multi-coverage discount. State Farm intends to keep writing car coverage. It’s cherry-picking, and a bill in the Legislature would make it illegal. Anyway, the simple way around that problem for State Farm is to stay in the property market, despite the company’s insistence that it needs a 47 percent rate increase to do so – after getting 52 percent more three mild storm seasons ago.

According to State Farm, the company filed the appeal mostly to preserve all its rights and options. A spokesman for the Office of Insurance Regulation says that “OIR and State Farm will continue to work together for a smooth transition.” State Farm, though, cannot be the one to set terms for that “transition.”