Florida Insurance Commissioner Fields Media on State Farm Withdrawal Order; CFO Sink Comments

After issuing an Order today, February 13, 2009, in which State Farm Florida Insurance Company’s plan to withdraw its property insurance coverage from the Florida market was conditionally approved, Florida Insurance Commissioner Kevin McCarty held a press conference, during which he answered questions related to the State Farm issue.

The Order is attached for your review, or click here.

Commissioner McCarty noted that the Order was based on findings that State Farm’s plan was ‘hazardous’ to its policyholders and to the public, and that its intention to move its customers into Citizens was unacceptable.

He stated that, although State Farm Florida was in compliance with subpoena issued on January 29 by the Florida Office of Insurance Regulation (“OIR”), the OIR would not allow abandoned State Farm Florida policies to be “warehoused” in Citizens Property Insurance Corporation in order for State Farm to continue offering auto policy discounts

Commissioner McCarty assured that the OIR would strive to ensure private sector rates are at, or below, those of State Farm and Citizens.  He did specify, however, that no decisions yet had been made by the OIR regarding State Farm auto policies.

Advocating prudent maximization of the Florida insurance market’s private sector, Commissioner McCarty indicated that 15 private insurers are in “sensitive negotiations” with the OIR to pick up the majority of State Farm Florida policies.  He said that many companies exist that are able to handle these risks, and that the State Farm policies would constitute some of the “better risks” in the State.

State Farm now has 21 days to review Commissioner McCarty’s Order and decide whether to abide by it, or to request an administrative hearing by filing a petition with the OIR. 

 

Florida CFO Alex Sink Comments On OIR’s Conditional State Farm Withdrawal Approval 

Including a copy of her February 3, 2009 letter to State Farm Florida President Jim Thompson asking that limitations on agents be lifted in order to assist State Farm policyholders in finding new property insurance coverage, Florida Chief Financial Officer Alex Sink offered the following statement today on the OIR’s conditional State Farm withdrawal approval:

“Today’s news brings clarity to thousands of Floridians who can now begin planning their insurance transition from State Farm Florida.  It is appropriate to hold State Farm Florida to high standards and require an orderly transfer within Florida’s private property insurance market.

“As Florida’s Chief Financial Officer, I am especially delighted that State Farm cannot interfere with its agents’ ability to place their customers with other insurance companies.  This allows current State Farm policyholders to remain with their State Farm agents, who will now be free to help Floridians find the property insurance coverage that best suits their needs. 

“We have posted helpful information for State Farm Florida consumers on our Web site, and I encourage all Floridians to shop around for coverage.  There are a number of insurance companies who are committed to helping Florida’s families protect their property and assets.” 

A copy of CFO Sink’s letter to State Farm Florida President Jim Thompson is attached for your review, or click here.

 

A report on the press conference from the News Service of Florida is reprinted below:

INSURANCE COMMISSIONER APPROVES STATE FARM WITHDRAWAL WITH CONDITIONS

By KATHLEEN HAUGHNEY
THE NEWS SERVICE OF FLORIDA

THE CAPITAL, TALLAHASSEE, Feb. 13, 2009…… State Farm, the state’s largest private property insurer, will be allowed to pull out of the Florida property insurance market, the state’s insurance commissioner announced Friday.

The company announced last month that it was being forced to retreat from the property insurance market by its inability to get approval for higher rates. Company officials said huge losses after major hurricanes made it unprofitable for the company to write policies in the state without the higher premiums.

Insurance Commissioner Kevin McCarty approved a withdrawal plan by State Farm over the next two years with several conditions. The company’s policies must be transferred to private companies, not Citizens Property Insurance, the state’s last-resort insurer, and its agents must be free to write policies by other insurers.

McCarty also said the Office of Insurance Regulation has been negotiating with 15 companies that have agreed to take up the bulk of the policies written by State Farm. He said that most policy holders will be able to receive new policies at private companies at or below the rates offered by Citizens – so, for policyholders, the situation was actually looking up.

“Quite frankly, State Farm has been acting in a condition hazardous to the policy holders and hazardous to the people of Florida,” he said.

McCarty vowed that the bulk of the policies wouldn’t be thrust into Citizens, which has come under the microscope of state officials worried that it wouldn’t be able to pay its claims if a massive hurricane hits the state. A three year rate freeze has put Citizens’ rates below the market average, and if they were not able to pay their claims during a hurricane, Floridians could face assessments on their policies or higher taxes to make up the difference.

Florida’s Chief Financial Officer Alex Sink said via a news release that she was pleased with the provisions in McCarty’s plan, including one that says State Farm must allow its agents to write policies for other companies.

State Farm Florida’s more than 800 agents are not employees of the company, but independent contractors. Under their contracts they can only sell policies for State Farm or place them in state-backed Citizens Property Insurance.

“Today’s news brings clarity to thousands of Floridians who can now begin planning their insurance transition from State Farm Florida,” Sink said. “It is appropriate to hold State Farm Florida to high standards and require an orderly transfer within Florida’s private property insurance market.”

State Farm released a statement following OIR’s announcement saying it was pleased with the commissioner’s quick decision on their proposal to withdraw from the state and that it needed to further study his conditional plan.

“We hope to have further conversations with the OIR to create an orderly process that is best for our customers, our agents and the marketplace,” the release read.

How the withdrawal plan may affect the company’s ability to write auto insurance is still unclear. A state law dictates that some companies that sell property insurance in other states, but not Florida, are not allowed to write auto insurance here, but it’s not clear whether that will apply to State Farm.

McCarty declined to identify the 15 companies he says are financially able and willing to take over many of the policies, saying the negotiations were ongoing.

He also said that regulators had improved increases in premiums for State Farm in the past, thinking it would help keep them here. McCarty said State Farm’s property insurance rates have gone up more than 500 percent since Hurricane Andrew in 1992.

Illuminating the Sunshine State

http://www.newsserviceflorida.com

 

Should you have any comments or questions, please do not hesitate to contact Colodny Fass.

 

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