State Farm Florida Update

An April 15, 2009 blog posting from the South Florida Sun-Sentinel regarding the State Farm Florida market withdrawal issue is reprinted below.

Should you have any questions or comments, please contact Colodny Fass.

 

State Farm fights Florida’s conditions for it to leave the state

Posted by Julie Patel on April 15, 2009 11:40 AM 

State Farm Florida asked Florida Insurance Commissioner Kevin McCarty for a hearing this week to fight his office’s requirements for allowing the company to leave Florida.

State Farm announced Jan. 27 that it plans to drop its 1.2 million property insurance policies because the money its spending on claims and other costs is out-pacing what its charging for premiums. McCarty approved the exit plan earlier this year with requirements to ensure most of the policies find a home with private insurers.

State Farm’s 44-page petition, submitted to the Office of Insurance Regulation late yesterday, reveals the main areas of contention between the company and state, including whether its agents should sell policies for other insurers and if it should be stripped of its certificate of authority. The petition also includes details about its 2-year exit plan such as its intent to drop the policies that “pose the greatest exposure to potentially devastating hurricanes” first so that it doesn’t go in the red while it’s still operating in Florida.

State Farm says a substantial number of policyholders have already left the company and the longer its dispute with the state takes, the more likely private insurers will “cherry pick” the policies with the highest premiums for the least risk leaving State Farm with policies that could hurt its bottom-line even more.

State Farm spokeswoman Michal Connolly said the new request is a formality in case the company can’t resolve its issues with regulators.

“Keep in mind we are having productive discussions with OIR to help create a state-approved process to offer replacement coverage to State Farm Florida customers,” Connolly wrote yesterday in an e-mail. “We hope to avoid a court intervention, but we are taking these steps to make sure all avenues remain open.”

McCarty’s office rejected State Farm’s first request for a hearing last month saying the company didn’t specify how or prove that its “substantial interests” would be harmed by the requirements. The office is reviewing the new request to see if it meets statutory requirements and will make a decision within 15 days, said Office spokesman Ed Domansky. “The issues raised by State Farm will be reviewed carefully and addressed in OIR’s response to the company,” he added.

State Farm spelled out details of how it believes it would be hurt by the state’s requirements. For instance, it says that if it allows its agents to directly sell policies for insurers besides state-backed Citizens Property Insurance, that could mistakenly give policyholders the illusion that the insurers are “somehow affiliated with, or even endorsed by State Farm.”

State Farm says that could leave it open to lawsuits if the new insurers mess up. Plus, the company says it would hurt its marketing strategy, focused on maintaining its reputation as an experienced, reliable company.

McCarty has also required State Farm to ensure its policies aren’t simply dumped into Citizens, which is the already the state’s biggest insurer. But State Farm, which is second behind Citizens, says it can’t dictate what its policyholders do or what private insurers do. Insurers may not want the riskiest policies and some policyholders may not want private insurance.

State Farm also says some of McCarty’s conditions — including a requirement that State Farm pay for the advertising needed to shift policies — would cost the company money it doesn’t have since it expects to be insolvent by 2011.

 

For a chronology on information relating to State Farm’s plan to withdraw from the Florida property insurance market, click here.

 

Should you have any questions or comments, please contact Colodny Fass.

 

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