Rival insurance companies filling void from State Farm’s Florida exit

Jacksonville Business Journal--February 13, 2009

by Rachel Witkowski Staff Writer

JACKSONVILLE – State Farm Florida Insurance Co.’s announced exit from the property insurance market is a boon for other insurance companies and independent agencies that are picking up the insurer’s customers well before they’re officially dropped.

The large influx of calls from concerned State Farm policyholders wanting to find new coverage, after the company announced last month that it wanted to stop writing property insurance in Florida, has some agencies hiring new employees. Those agencies said they are finding comparable, if not lower, rates across all types of insurance coverage for their new customers.

“We get 50 to 100 calls a day per office” from State Farm policyholders, said David Miller, CEO of Jacksonville-based independent agency Brightway Insurance.

Though the business is welcome, especially in a recession, property insurers are concerned about their limited financial capacity to cover 1.2 million State Farm policyholders and the expected increase in reinsurance costs this year.

Brightway has 200 employees in 40 offices across Florida. Miller said he hopes to add five more offices in the next 30 days.

Even before State Farm Florida announced its two-year exit strategy Jan. 27, Miller said Brightway added five new employees per week since the beginning of the year, but he expects to hire 10 to 20 more employees each week as increased volume continues.

Insurance agents agreed that of the State Farm policyholders who are looking for another property insurer, many are choosing to transfer their whole business relationship, including other types of policies.

On the automobile insurance side, other carriers can beat the rates set by State Farm on their policyholders “pretty handily,” said Roxanne Starbuck, personal lines manager for independent agency J.P. Perry Insurance Inc. The agency also recently hired another account manager to help with increased volume.

State Farm Florida spokesman Michal Connolly took exception to Starbuck’s statement. “We’re always very competitive on auto insurance,” he said.

Starbuck said if a home insured by State Farm was built after 2002, “we can meet the rate and in some cases, we can beat it.” But many homeowners’ policies with State Farm were “very inexpensive.”

Miller said some of the policyholders have been overinsured and are paying too much for the insurance because of “inflation protection,” which automatically increases the coverage on the house each year. “If you don’t watch it, it can become substantially more than the actual cost to rebuild the existing house.”

Brightway agents are reporting a 25 percent to 50 percent savings over the State Farm policyholder’s premium by switching to another insurer, he said.

Agents are finding comparable rates primarily because there are more insurance carriers willing to cover properties in Florida now compared with a couple of years ago when carriers were fleeing the state.

Among 26 new insurers in the state since 2006, 24 were for homeowners’ insurance, according to the Florida Office of Insurance Regulation. An additional seven existing insurance companies were approved to write homeowners’ coverage during that time.

St. Augustine-based Sunshine State Insurance Co. has had an increase in policies since the beginning of the year, some of which was from State Farm policyholders, said President and CEO John Rogan.

“We’d all like to help very much with a market anomaly like State Farm wanting to withdraw, but it has to be a prudent business decision,” he said.

Though many insurers in the state have been aggressively marketing to State Farm policyholders, one of their largest concerns is making sure they can afford the reinsurance to take on more policies and therefore a greater exposure in the state.

Insurers buy reinsurance every year to cover their risk of losses for insuring their policyholders.

In Florida, every insurance company has to buy reinsurance from the state-run Florida Hurricane Catastrophe Fund, or Cat Fund, and from other reinsurance companies. As the bond market tightened, however, insurance leaders became increasingly concerned about the Cat Fund’s ability to go to the bond market in order to pay claims.

The Florida Insurance Council announced late last year that the Cat Fund would have a $10 billion to

$15 billion shortfall if there was a major hurricane that reached the fund’s full capacity of $28 billion.

Insurers will be very cautious to take on more exposure without knowing what will happen to the Cat Fund, Rogan said.

The fund is expected to be addressed during the Florida Legislature’s regular session, which begins March 3.

Rogan said his company paid $42 million in reinsurance last year and he has been notified by the London reinsurers that the rate will increase in the low double-digits this year. That means the insurer’s cost will go up, which most often means insurance companies will have to file a rate increase later this year.

If the rate increase is not approved, the insurer can use its surplus to pay for increased reinsurance costs, which would otherwise go to covering more policies, or the insurer can choose not to renew policies, as State Farm intends.

“There’s more than enough capacity” for State Farm policyholders, Miller said. But he advised policyholders to shop early because the best-suited carrier may reach capacity.

Starbuck said homeowners don’t want to be in a “position where it’s hurricane season and they can’t get coverage.”