State Farm Florida Exit Hearing Postponed
Dec. 3, 2009 – An administrative hearing regarding a proposed exit from Florida’s homeowners insurance market by its largest player has been postponed until Jan. 25, although some speculate the hearing may never occur.
Florida insurance officials and officials for State Farm Florida – the Sunshine State’s largest private home insurer – are negotiating terms of the firm’s planned exit from the Florida homeowners insurance market. But the hearing might never happen if both parties agree to a plan allowing State Farm Florida to continue providing homeowners insurance coverage in addition to its other property and casualty insurance offerings.
Florida Insurance Commissioner Kevin McCarty previously said he wants to work out an arrangement enabling State Farm Florida to continue offering homeowners insurance and other property insurance coverages in the hurricane-prone state. McCarty in 2008 denied a request by State Farm Florida officials to increase homeowners insurance rates by an average 47.1 percent. The state’s Division of Administrative Hearings upheld the decision a year ago, which was appealed to and affirmed by the state’s First District Court of Appeals.
McCarty accused State Farm Florida officials of using the rate denial as a pretext to pull out of the state’s homeowners insurance market, but company officials claim financial realities are forcing the insurer to exit the market unless it can charge higher premiums.
“This is not an action we wanted to take but one we must take given the realities of the Florida property insurance market,” State Farm Florida President Jim Thompson said. “Faced with steeply declining resources to cover future claims and expenses, State Farm Florida has little choice.”
When initially denied the requested insurance rate increase, State Farm Florida announced a two-year plan to withdraw from the state’s property insurance market while continuing its life, health and auto insurance businesses. But Florida officials have denied the withdrawal request unless the insurer can find other private insurers to assume the more than 200,000 property insurance policies underwritten by State Farm Florida.
McCarty cited concerns that too many people would opt for the state-backed Citizens Property Insurance Corporation.
State Farm Florida officials requested the 47 percent rate hike after posting significant losses in recent years. The Florida subsidiary of State Farm Mutual Insurance has suffered severe losses since the state was pummeled by four hurricanes in a month during the 2004 Atlantic hurricane season.
State Farm Florida officials say the insurer has paid out $1.21 in claims for every dollar in premiums it has collected since 2000. The insurer paid out billions of dollars in claims after the 2004 hurricane season, and its net worth has decreased by nearly 25 percent since 2006. The insurer borrowed $750 million from its parent company in 2005 and has not repaid the amount.