FLORIDA INSURANCE CONSUMER ADVOCATE SEAN SHAW: State Farm customers have options

Pensacola News-Journal–February 15, 2009

As Florida’s Insurance Consumer Advocate, I am disappointed in State Farm Florida’s decision to exit the property insurance market.

We need to consider the immediate fallout:

• Does the private market have the capacity to absorb State Farm’s policies?
• How will State Farm agents deal with their customers?
• Who will guide consumers through this process?

Large national insurers have been reducing the amount of property insurance they write in Florida since Hurricane Andrew in 1992. Yet, there are 135 insurers currently writing residential property insurance in Florida. The Office of Insurance Regulation has stated that these companies have the capacity to take over State Farm’s policies. Several insurance companies are already aiming new ads at State Farm policyholders.

However, as Chief Financial Officer Alex Sink expressed in her letter to State Farm Florida, the negative ramifications of its decision to leave the market are compounded by the fact its agents are “captive” agents. Under their current contracts, agents can only sell State Farm insurance; the only exception is that agents can write coverage in Citizens Property Insurance Corp.

Careful consideration

Given no alternative, State Farm agents will have every incentive to place their customers with Citizens. Yet, state-backed Citizens, created by the Legislature in 2002 as an insurer of last resort, has already ballooned to risky proportions: It’s the state’s largest insurer, with 1.1 million policies and $412 billion in exposure. If a significant number of State Farm Florida’s 933,140 residential policies joined Citizens, it would increase insurance subsidies and create a much larger risk than the state can afford.

This is why I support Sink’s call to allow State Farm agents to sell property insurance for other insurers.

Meanwhile, there is no immediate action necessary for State Farm policyholders. The withdrawal plan has been submitted to the Office of Insurance Regulation for approval; if approved, the company will provide 180 days advance notice of nonrenewal.

Many consumers are angered about State Farm’s decision and have contacted my office with plans to cancel all of their insurance policies with the company. However, consumers should think very carefully before making these decisions, because there may be a cancellation penalty.

There aren’t any penalties for canceling homeowner policies, and consumers should receive a pro rata refund after the date of cancellation. However, when consumers cancel auto insurance, the insurer can keep up to 10 percent of the unearned premium, and there are substantial penalties for early cancellation of certain annuities and life insurance policies.

When considering a new policy, homeowners should make sure they are purchasing comparable coverage with adequate limits to properly repair or rebuild their homes and replace their possessions after a loss. Cheaper does not always mean better!

Learn more on the Web

We recommend new homeowners visit the Department of Financial Services Web site (www.myfloridacfo.com). You can learn more about homeowner insurance and compare companies by size and number of complaints at www.myfloridacfo.com/Consumers. You can also contact insurance agents in your area. Also, you can find information about your insurance needs and agents in your area by calling 1-800-524-9023, or online at www.fmap.org.

You can compare the average premium charged for a $150,000 home built before 2001, or a $300,000 home built after 2005 by visiting www.shopandcomparerates.com, operated by the Office of Insurance Regulation. This site displays sample premiums for a variety of companies; however, not all of them may be writing policies in your area.

Homeowner insurance policies are complex legal contracts. If you have any questions, contact the Department of Financial Services, Division of Consumer Services, at 1-877-693-5236, or at www.myfloridacfo.com.

Sean Shaw is Florida’s insurance consumer advocate in the office of Florida CFO Alex Sink. He represents consumers on insurance issues. E-mail him at sean.shaw@myfloridacfo.com.
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Have homeowner insurance questions?

Contact the Department of Financial Services, Division of Consumer Services, at 1-877-693-5236, or at www.myfloridacfo.com.