State Farm to Florida Property Owners: Farewell

Florida is losing its largest property insurance company.

On Jan. 27, State Farm Florida Insurance began the process that will allow it to non-renew policies and halt all sales of homeowners or other property-related policies in the state within two years.

The withdrawal will affect about 1.2 million customers with State Farm homeowners, renters, condominium unit owners, personal liability, boats, personal articles, and business property and liability policies.

It will not affect the availability of auto insurance for about 2.8 million of the insurer’s Florida customers nor the availability of life insurance, health insurance and other financial services offered by agents of State Farm Mutual and its other affiliates.

Florida law requires that the company submit a withdrawal plan for approval by the Office of Insurance Regulation, and then give insureds 180 days notice of any non-renewals.

Insurance Commissioner Kevin McCarty, who has regularly sparred with State Farm over rate increase and information requests, said he was not surprised and vowed to scrutinize any plan.

The company cited its “substantially weakened financial position,” which it tied to its inability to obtain regulatory approval of property insurance rate increases. The company said that state-mandated discounts have further contributed to the reduction in revenues.

Jim Thompson, president, State Farm Florida, said the insurer was left without options. “Faced with steeply declining resources to cover future claims and expenses, State Farm Florida has little choice. This is not an action we wanted to take, but one we must take given the realities of the Florida property insurance market,” he said in a statement.

Thompson said that Florida’s hurricane exposure poses a tremendous financial risk to any property insurer including state-backed Citizens but maintained that even without a hurricane, State Farm Florida’s operating costs have risen as day-to-day claims have increased both in their number and severity. During the first three quarters of 2008, a year with relatively modest catastrophe impact and no major hurricane, State Farm Florida said it saw its surplus reduced by $201 million.

In July, the insurer filed for an statewide homeowners rate increase of 47.1 percent. The filing was disapproved on Jan. 12 by McCarty and the OIR.

McCarty said State Farm’s withdrawal action, while disappointing, was anticipated. “We have been hearing for months of possible plans to make such a move in Florida, including a document submitted to the Office as recently as Dec. 5 as part of their recoupment filing that showed an anticipated reduction to 655,000 homeowner policies by 2010,” McCarty said.

He said OIR would review State Farm’s plans to ensure that they are in compliance with Florida law and explore all legal options as well. Within days, McCarty had issued a subpoena to State Farm requesting detailed information about its Florida policyholders.

The commissioner suggested that the private market could pick up the business. “To help ease the transition of policies, Florida already has new companies who are eagerly looking to grow their businesses and will welcome the opportunity to add more customers,” he said.

As national carriers like State Farm have grown skittish about the Florida market, domestic insurers have been grabbing more business. The jump in domestic market share is partly attributed to the increase in the number of new, homegrown companies that have started in Florida in the past several years. Since 2006, about 25 new domestic companies have entered the market.

If private carriers are not able to assume the State Farm business, it could mean more accounts for state-backed Citizens Property Insurance, which has been shrinking somewhat over the past year.