State Farm’s rates could rise 70% for some

State Farm Florida has requested an average 47 percent rate increase for its homeowner policies.

BY BEATRICE E. GARCIA
PHILIP BROOKER / MIAMI HERALD FILE
Miami Herald--July 17, 2008

State Farm Florida, the state’s largest private home insurer, wants to boost homeowner policy rates an average of 47 percent — and even higher in South Florida.

If state regulators approve the company’s requests, rate increases could range from 45 percent to 70 percent in Miami-Dade County, 41 percent to 62 percent in most of Broward and much higher on the county’s barrier islands.

The increases, detailed in a nearly 600-page rate filing submitted Wednesday, would be effective for policy renewals starting March 1, 2009. State Farm has a million policyholders in Florida.

Company officials must defend the request at an Aug. 12 hearing in Tallahassee, and a recent change in state law governing rate increases means that won’t be easy. The request also appears to violate a law passed last year that requires insurers who bought discounted backup insurance from the Florida Hurricane Catastrophe Fund to pass the savings on to consumers.

Chris Neal, a State Farm spokesman, said the company will explain at the hearing that State Farm bought as much backup as it could from the catastrophe fund and didn’t see significant reinsurance savings, requiring the rate hikes.

State regulators and lawmakers who have been battling rising insurance rates were surprised and angered by the filing.

”That’s outrageous,” said Sen. Jeff Atwater, a North Palm Beach Republican at the forefront of finding legislative solutions for homeowners swamped with unaffordable insurance bills.

”The only thing that I can feel good about is that 60 days ago we changed Florida law, and Florida consumers will not be victimized by State Farm,” Atwater said.

GETTING APPROVAL

He was referring to a law passed in early May that extended a ban on the state’s use-and-file provision through next year. Before the ban, insurers had been allowed to implement a rate increase first and then get state approval.

The new law also abolished the arbitration panel, a system for appealing rate increases that had been denied by the state Office of Insurance Regulation. Arbitration had proved extremely favorable to insurance companies, who won all but a few cases that went to arbitration.

Last year, State Farm worked out an agreement with regulators to lower rates an average of 9 percent after taking advantage of lower-cost reinsurance offered by the state catastrophe fund. The company warned that because it bought the bulk of its reinsurance from its parent company and not the catastrophe fund, the savings it achieved wouldn’t mean much of a reduction for policyholders.

If the state rejects State Farm’s request, the insurer can ask for a hearing at the Division of Administrative Hearings.

That decision can be appealed in state court.

Gov. Charlie Crist and Insurance Commissioner Kevin McCarty, who have pushed hard for lower rates, were traveling in Europe on a trade mission Wednesday and were unavailable for comment.

BOOST FOR RESERVES

State Farm said the rate hike is needed to stabilize its financial condition and make sure it has enough reserves on hand to pay claims after a major storm.

The company has paid out $1.20 in claims for every $1 collected in premiums since 2000, said Justin Glover, another State Farm spokesman.

”Unlike Citizens, we can’t assess after the fact. We have to be ready to pay claims immediately after the storm,” Glover said.

He was referring to the state-run insurer, which can add a surcharge to policies of its own customers first and then assess all policyholders in the state if it has a shortfall. The Citizens assessment would be used to pay back borrowed funds it would tap in case of a deficit. But like State Farm, Citizens also needs to have cash to pay claims quickly after a major hurricane.

State Farm, which has been working aggressively in recent years to reduce its catastrophe risk in Florida, said earlier this year it wouldn’t write new homeowner policies in the state. State Farm hasn’t written new policies in South Florida for more than a decade. It’s also not renewing about 50,000 policies in coastal areas throughout the state over the next year.

State Farm’s last rate increase was approved in 2006. That rate hike left many South Florida policyholders with premiums that jumped 100 percent or more.