OIR Issues Final Order Denying State Farm Rate Increase

The Florida Office of Insurance Regulation (“OIR”) issued a Final Order today, January 12, 2009, affirming the ruling of an administrative law judge regarding the rate filing challenge issued by State Farm Florida.

To view a copy of the OIR’s Final Order, click here.

 

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

 

Florida Insurance Commissioner Issues Final Order Denying State Farm Rate Increase

TALLAHASSEE, Fla. – Florida Insurance Commissioner Kevin McCarty today affirmed the ruling of an administrative law judge regarding the rate filing challenge between the Office of Insurance Regulation (Office) and State Farm Florida (State Farm). The commissioner’s Final Order officially disapproves the rate filing submitted by State Farm and adopts the judge’s findings of fact and some of his conclusions of law.

The matter was heard Oct. 27 – 30 at the Division of Administrative Hearings (DOAH), and a Recommended Order disapproving the rate filing was issued Dec. 12 by Administrative Law Judge Daniel Manry. The judge’s Recommended Order was based on his conclusion that: “State Farm Florida did not show by a preponderance of the evidence that either the indicated rate or requested rate in the rate filing is not excessive, inadequate, or unfairly discriminatory.”

“Judge Manry’s decision was very thorough and demonstrates the importance of the administrative review process,” said Commissioner McCarty. “I am very pleased with the ruling, and we feel strongly that this supportive decision will further help us in our endeavors to protect Florida consumers from unwarranted rate increases.”

In its July 16 rate filing, State Farm sought an overall average increase of 47.1 percent for homeowners insurance policies. During the DOAH proceeding, the company argued instead for what it said was its “indicated” rate need of 67.0 percent. 

The 9 percent rate reduction that became effective in accordance with the Oct. 1, 2007 agreement remains in effect.

State Farm may appeal the Final Order to the District Court of Appeal within 30 days; but it still cannot implement the proposed rate increase, because Senate Bill 2860 prohibits companies from implementing rate increases through the “use and file” process, through Dec. 31, 2009. 

Here is a brief history of this matter:

July 16 – In its rate filing of more than 2,000 pages, State Farm requested an overall average increase of 47.1 percent for homeowners insurance policies. State Farm policyholders in certain parts of Florida could have seen increases of as much as 63 percent, or $8,300 more than their current rates, in Dade County; 70 percent, or $4,800 more per year, in Pinellas County. The smallest requested change was an increase of 19 percent, or an additional $1,376 per year, in Pasco County. These examples are for homes valued at $300,000, built before 2001 and without any mitigation devices. Other rate examples by county are available on the Office Web site.

Aug. 12 – Public hearing in Tallahassee

Aug. 25 – Office issues Notice of Intent to Disapprove the July 16 rate filing. Among the key reasons cited by the Office in the Aug. 25 Notice were: 1) The Company failed to demonstrate that the net reinsurance costs included in the filing did not result in excessive costs in violation of the rating law (Section 627.062, F.S.); and 2) The Office also questioned the profit and contingency factor and the additional retained hurricane risk load used in the filing. The retained hurricane risk load was previously allowed by law, but that provision was repealed in Senate Bill 2860. Eighteen other reasons were cited by the Office.

The Office determined that State Farm did not provide appropriate support for the rate increase it requested.

Aug. 29 – State Farm files its first petition requesting a DOAH hearing.

Sept. 5 – Office sends letter to State Farm rejecting its Aug. 29 petition for a DOAH hearing.

In making its petition, State Farm was required by law, Section 120.569(2)(c), Florida Statutes, to set forth all disputed issues of material fact and cite specific statutes or rules it believes supported its petition for reversal or modification of the Office’s Notice. On the other hand, the Office is empowered by the same statute to reject the petition if it believes the company has not properly specified any disputed material facts.

State Farm’s petition was incomplete in that it did not demonstrate that there were any material issues of fact in dispute – the company basically just said that it disagreed with the reasons given by the Office in the Notice of Intent to disapprove.

Sept. 12 – State Farm files its second amended petition requesting a DOAH hearing.

Oct. 2 – Office sends letter to DOAH requesting appointment of administrative law judge.

Oct. 27 to 30 – DOAH Hearing; State Farm formally argued for its “indicated” average statewide rate need of 67 percent, not just the 47.1 percent rate increase requested in its July 16 filing.

Dec. 5 – State Farm submits a FIGA recoupment filing to the Office; it shows that by 2010 the company plans to reduce its Florida homeowners exposure to about 675,000 policies in force (from its current level of about 845,000 policies in force).

Dec. 12 – Judge Manry issues Recommended Order

Additional Background:

In its March 2007 filing, State Farm initially planned to reduce its rates by 7 percent but agreed to reduce them by an additional 2 percent (per Oct 1, 2007 agreement noted above).

In October 2006, State Farm received approval for a 52.7 percent overall average increase. 

 

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