State Farm dumps 50,000 statewide

Herald Tribune–Monday, Feb. 18, 2008
By John Hielscher

Longtime State Farm customer John Spencer is not wanted any more.

He is getting dumped, one of 50,000 coastal Florida homeowners whose hurricane coverage will not be renewed by State Farm this year.

“It just irritates you that you get canceled, and it makes you nervous,” said Spencer, whose policy on his Englewood home expires several weeks before the start of the 2008 hurricane season.

An estimated 7,500 customers in Sarasota, Manatee and Charlotte counties will be dropped by State Farm, Florida’s largest private homeowners insurer.

Many will wind up with windstorm coverage at Citizens Property Insurance Corp., the state-run insurer that is one of the few options for insurance near the coast.

For some of them, there could be a silver lining.

State Farm is among the priciest insurers for coastal properties. Citizens, after rolling back one rate hike last year and freezing rates through 2008, could be a cheaper alternative.

Punta Gorda Isles homeowner Gerald Crowley expects to switch to Citizens when his State Farm policy expires in late March.

His premium will drop about $600 from the current $3,600. But he is still not happy about being dumped.

“It’s the principle of the thing,” he said. “I can afford what they wanted to charge.”

Sarasota insurance agent Al Malins said some private companies are writing new policies along the coast and may accept customers from State Farm.

“People certainly have options,” he said. “It pays to do some shopping around.”

Norm Harte, also a Punta Gorda Isles homeowner, has been searching for new coverage since he got his cancellation notice last month.

“We’ve pursued Citizens and others, but the coverage they are offering is pretty awful,” he said.

He may save a modest amount of money by going with Citizens, but it will come in part by reducing his insured value from $350,000 to $305,000 and eliminating such coverages as a pool cage.

Harte thinks the state should block insurers from “cherry picking,” or getting rid of their riskiest customers.

“If State Farm or any insurance company doesn’t want to do the whole game, pull their license and find somebody else to do it,” he said.

Many property insurers have trimmed their Florida exposure since the 2004-2005 hurricane seasons, which caused $37 billion in insured damage.

Allstate, Nationwide, USAA and Tower Hill are among the major players that have pared down.

State Farm stopped writing new business in some coastal counties years ago, but this was the first time the company decided it needed to drop policies, said spokesman Chris Neal.

“We kind of managed it through attrition, but we came to the point where that just wasn’t working for us anymore,” he said.

The 50,000 nonrenewals represent about 5 percent of its 1 million homeowners policies in Florida.

State Farm began the policy cancellations last fall but was soon blocked by the Florida Office of Insurance Regulation. The original plan was to drop customers who lived within several miles of the coast or other bodies of water, while retaining any of those with other company policies, such as auto.

The insurance regulators objected to that practice. After reaching an agreement with OIR over who would be canceled — along with promising a 9 percent rate cut — State Farm began resending nonrenewal notices in January. That premium reduction followed an average 53 percent rate hike in 2006.

The company is now cutting all windstorm policyholders who live within one mile of the coast, regardless of any other coverage they have.

Those customers are getting at least 120 days of advance notice so they can find new coverage. Timing can be an issue — some insurers, including Citizens, will not quote a new policy more than 30 days before it takes effect.

Pressure from the state to lower insurance rates is driving companies to reduce exposure, Neal said, as they balance their ability to pay claims when a hurricane hits.

“You’ve got two choices: raise rates or lessen your exposure,” he said. “Our choice here was to lessen exposure. Being closer to the water presents the highest risk. By nonrenewing 50,000 homes closer to the water, it takes a significant amount of exposure away from the company.”

Spencer, a State Farm customer in Florida and elsewhere for 30 years, hopes to find wind coverage from someone other than Citizens.

“They are just dumping us into the Citizens pool,” he said. “It is not as good a coverage. If they are just dumping liability back to the government, why not just have government insurance?”

Malins said his agency tries to avoid putting customers into Citizens because they may later become “take-out” policies by other carriers.

Citizens was criticized for poor customer service after the 2004 hurricanes, but regulators and others say it has improved.

“You have to give them credit for trying to act more like an insurance company,” Malins said.

Some homeowners with other State Farm lines, such as auto, are thinking about taking that business elsewhere.

Citizens does not offer auto insurance, and those homeowners could miss out on multi-line discounts they now enjoy.

State Farm, Florida’s largest auto carrier, expects some of those customers will leave.

“It would be naive of us to think we won’t lose some of our auto business because of the nonrenewals,” Neal said.
Last modified: Monday, Feb. 18, 2008 at 2:02 a.m.