State Farm to Remain in Florida Home Insurance Market

Published: Thu 17 Dec 2009

Lucas Eichmann

A "smaller, leaner" State Farm Insurance has decided it will remain a home insurer in Florida, reversing an earlier decision to stop selling residential coverage there.

The reason for the change of heart stems from state insurance regulators allowing the company to increase rates about 15 percent while cutting 125,000 homeowners from the 810,000 it serves in Florida. This allows State Farm to shrink the amount it would expect to lose if a major storm hit the state.

"State Farm is withdrawing its withdrawal," Florida Insurance Commissioner Kevin McCarty said. "A smaller, leaner State Farm in Florida is better than no State Farm at all."

After an earlier bid to raise rates was denied, State Farm in January announced it would stop covering homes in Florida and withdraw from there during a two-year span.

Getting permission from the state to make the change the rates and customer base "helps State Farm Florida stabilize our financial condition, which has been deteriorating for a couple of years now," said Chris Neal, a spokesman for State Farm's Florida unit. "It does what we need it to: It reduces our risk exposure and it begins to address our rate inadequacy."

The company last year reported its first loss in Florida in six years. It paid $542 million to cover claims filed after the devastation caused by Hurricanes Ike and Gustav. In the same year, the entire U.S. insurance industry paid $27 billion in claims - the most since Hurricane Katrina struck three years earlier.

McCarty's department had been concerned many of State Farm's customers would be considered too risky for other insurance companies because they lived in areas most prone to storm damage. They would have flocked to the state-run Citizens Property Insurance Corp. like others whose insurers dropped them after the 2004 and 2005 storm seasons. The state fund already is strapped for cash and may need to sell municipal bonds if another disaster occurs.

Robert Hartwig, president of the Insurance Information Institute, said the rate increase and customer decrease likely resulted from pressure applied by State Farm customers in Florida.

Under the approval, State Farm can drop any Florida customers it chooses, Neal said. The most likely policies terminated would be those for homes in coastal areas most susceptible to storm damage as well as older homes that would be too costly to rebuild, he said.

State Farm in February will issue the first cancellation notices that give policyholders six months to get another insurance company. Even with those cancellations, the company still will be the biggest private home insurer in the state, state insurance regulators said.