State Farm rate request displeases lawmakers

Herald Tribune–July 18, 2008

By John Hielscher

State Rep. Keith Fitzgerald will not have to sweat the hefty homeowners insurance rate increase proposed by State Farm Florida — the company is dropping him this year.

But the Sarasota Democrat was surprised to learn that State Farm wants to boost rates by up to 72 percent in Sarasota, 79.4 percent in Manatee and 82.1 percent in Charlotte counties. The increase would average 47.1 percent statewide.

"It underscores that the insurance problem hasn’t been solved," Fitzgerald said.

State lawmakers knew they did not fix Florida’s property insurance crisis when they passed reform legislation in early 2007. But they thought they provided weary homeowners some relief from several years of soaring premiums — a belief that now appears in jeopardy.

"To me, it’s inexplicable," said state Rep. Bill Galvano, R-Bradenton. "I just don’t see where, with the progress we’ve made, that all of a sudden here is another request for a 47.1 percent rate hike."

In the reform law, the state assumed more risk from insurers by adding $12 billion in reinsurance coverage through the Florida Hurricane Catastrophe Fund, Galvano said. A dozen new property insurers have since been enticed to offer coverage in the state, he added.

"State Farm was as much a beneficiary of those reforms as any other company, and they should be passing the savings on to their insured homeowners," he said.

State Sen. Jeff Atwater, R-North Palm Beach, ripped State Farm’s rate increase as "outrageously high."

"The rate filing will be processed completely in the Sunshine, and it must conform with state-approved scientific and actuarial models, not State Farm’s profit goals," said Atwater, in line to become Senate president next year.

The company is Florida’s largest private property insurer with about 950,000 homeowners policies, second only to the state-run Citizens Property Insurance Corp., which covers about 1.3 million homes.

State Farm asked Florida insurance regulators Wednesday to approve the rate increases, which will hit its 50,000 customers in Sarasota, Manatee and Charlotte especially hard.

"It’s obviously bad news coming at a bad time," Fitzgerald said. "People are already struggling to make ends meet with inflation going up, and increases in insurance bills are not going to be helpful."

State Farm Florida officials say they need higher rates to stay in business. The company said that since 2000 it has paid out $1.2 billion more in claims and expenses than it collected in premiums.

"Our rates need to match the risk here in Florida," said company spokeswoman Michal Connolly.

But profits remain robust at parent State Farm of Bloomington, Ill. The company earned $5.5 billion in 2007, up from $5.3 billion in 2006 and its fifth straight years of profits.

Under the 2007 reform law, property insurance premiums were rolled back by an average 14 percent — not as much as leaders like Gov. Charlie Crist wanted, but better than another year of higher rates.

In an agreement with the Florida Office of Insurance Regulation, State Farm cut rates by just 9 percent, which followed a 52 percent rate increase in 2006. The company has since stopped writing new homeowners business.

The Legislature has frozen Citizens’ rates for another year, and private companies have taken out hundreds of thousands of policies from the state-run insurer of last resort, Galvano said.

"Because of a variety of factors, not the least of which being a lack of significant storms, the market has been getting better," he said.

The OIR will insist that State Farm justify the rate increase. A public hearing will be held Aug. 12 in Tallahassee.

The state recently prevailed in a court battle with Allstate, another large property insurer, over proposed rate increases and access to corporate records.

Consumer advocate Bill Newton believes OIR will take a hard look.

"They have been very vigorous in their analysis of these company proposals recently, and I would expect a rigorous examination of this," said Newton, executive director of the Florida Consumer Action Network.

Fitzgerald said he has not reviewed the State Farm rate request so he could not comment on specifics. He noted that property insurance companies are facing difficulties doing business in hurricane-prone Florida.

He is one of 50,000 State Farm customers living near the coast who are being dumped this year.

"When they started dropping people in this area, my office got calls asking me if there was anything I could do to help," he said.

"I had to tell them the answer is ‘No,’ because I was dropped by State Farm. I’m in the same boat as everybody else."