State Farm's Future in Florida Home Insurance Market Uncertain

Published: Thu 19 Nov 2009

Thomas Kristoffersen - Staff Writer

If the Florida insurance commissioner's recent statements are any indication, State Farm may not withdraw from Florida's home insurance market after all. State Farm has been in talks with Insurance Commissioner Kevin McCarty since announcing its decision earlier this year to drop homeowners coverage.

Mr. McCarty said that he is "cautiously optimistic" about State Farm not dropping all of its homeowners insurance policies in Florida.

Based in Bloomington, Illinois, State Farm is the biggest private home insurer in Florida, and it announced in January that it would cease issuing homeowners policies in Florida, where it has over 700,000 home insurance customers.

"We've really been having intense negotiations with the company at very high levels," Commissioner McCarty said Thursday.

McCarty and State Farm officials were both silent on the details of the negotiations.

"We don't want to talk about it publicly until we reach an agreement," commented State Farm spokesman Chris Neal.

McCarty's prediction is that State Farm will remain in the Florida market but will scale back its presence. If that is indeed the case, the move is likely good news for Florida homeowners who have experienced skyrocketing premiums since Hurricane Andrew struck the area in 1992.

"A leaner, smaller State Farm in Florida is better than no State Farm in Florida," McCarty assured Floridians.

The executive director of the Florida Consumer Action Network, Bill Newton, believes that Florida homeowners will benefit if State Farm remains in the market.

"It increases competition in the marketplace," Newton explained. "For them to drop all those policies would have been disruptive, and I'm not sure the market would easily have absorbed it."

State Farm argued that it needed a massive rate increase in order to continue offering home insurance policies profitably in the Florida market. The company cited large losses and a growing risk of hurricanes as the primary reasons for their waning profitability.

Last year, State Farm asked Commissioner McCarty to approve a rate increase of 47 percent. The commissioner rejected the rate hike, saying that the insurer failed to justify it. State Farm responded with an announcement that it would withdraw from the Florida property insurance market and only offer auto, life, and health insurance in the state.

State Farm has not yet dropped any homeowners insurance policies in Florida. If the insurer does pull out of the market, the Florida Insurance Commission must approve an exit plan before it does so.

Newton believes that the commissioner successfully called the insurer's bluff to leave the market.

"I'm cynical, but I thought it was a poker game all along," Newton explained. "State Farm has a good book of business. Why would they walk away from it?"