Florida homeowners slabbed by State Farm request for 47.1% average rate increase

On my way out of town Friday, I filled my tank for $62.50 – exactly half of the monthly payment on my first car. I imagine State Farm policyholders in Florida are having similar thoughts about State Farm’s proposed rate increase.

After lowering rates 9 percent this year, State Farm, the state’s second largest home insurer, did an about-face Wednesday when it asked state regulators for permission to raise homeowners’ rates 47.1 percent on average.

The private insurer, with nearly 1 million policies statewide, said it isn’t generating enough cash to cover the claims that could result if a major hurricane strikes next year. In Hillsborough and Pinellas counties, State Farm has nearly 100,000 policyholders.

“Our current rates are inadequate and must change,” said Michael Grimes, a spokesman for State Farm Florida. “We’re making this filing so we can continue to do business in Florida.”

…State Farm Florida Insurance Co. says it needs to increase premiums to have the cash to pay claims if major storms strike.

The planned increase flies in the face of the Legislature’s efforts to curb property insurance prices that doubled or tripled in some cases after hurricanes in 2004 and 2005.

After I returned to my wired world on Sunday and saw Chip Merlin’s post, I realized I’d left town with this story still in draft – sorry – but now you get Chip’s perspective, Snookered Again, plus the news story.

When will our legislature learn not to trust insurance executives and, especially, their lobbyists? Maybe when we vote insurance-beholden legislators out of office.

The Tampa Tribune, St. Petersburg Times and Miami Herald ran front page stories regarding State Farm’s administrative request for an average rate increase of 47%. At first I thought it was a mistake, until all three papers reported the same increase and the St. Petersburg Times indicated that some increases for existing rates could be 91%.

Something is terribly wrong. State Farm has increased rates for the past several years. Supposedly, those rates were somewhat fair to State Farm and their policyholders. Florida suffered zero hurricane losses the last two years. State Farm, unless it is altering its books, has to be lake every other carrier in Florida over the past two years–raking in the cash. They have collected very high premiums based upon catastrophes that never materialized.

Those are fighting words for folks like our friend CLS from All Finance who already wants to see the cat on the hot tin roof.

It would also be nice if the insurance companies were mandated to tell the consumer the amount of savings in premium, based on NON-INDEMNITY REINSURANCE (cat bonds/HF sidecars).

Insurance is a business and expected to produce a profit – but something is wrong when it can’t make a profit without causing other businesses to close because insurance has become too expensive.

Business has to offer the public a product they want to purchase at a price they’re willing to pay. If the product doesn’t work (and insurance isn’t working for a lot of people) and/or the price is too high (and for many it is if, and only if, they can even find insurance to buy), you’ve got a product without a market and a matter of time before the business fails or…

Merlin cuts to the chase.

State Farm is one of the largest lobbying organizations in Florida and the United States. The management wields a lot of power because it uses customer’s premiums to influence regulators and legislators for laws that benefit State Farm, ofter to the detriment of its own customers. It is all legal, and it makes good business sense for the executives of State Farm to influence social laws to its best economic interest.

The question is how long we are going to alow this corporation to control the people we elect and have appointed? Eventually, there must come a recognition that people, not corporations, are the reason laws are made and government exists. When elected officials are asked if a policy or law helps the people and are commited to that function, these crazy situations will occur much less frequently. Only arrogant corporations could expect to do what State Farm did this year and Allstate did the year before. Are the people of Florida [this nation]simply pawns in the schemes these insurance companies concoct to enough themselves?

Sop, you be sure to ask that question tonight and let us know what was said.

Here’s the rest of the story from the Sun Sentinel.

The state Office of Insurance Regulation will conduct a hearing Aug. 12 to consider the increase, which would affect windstorm and contents coverage for home and condominium owners and renters.
If the rate boost is approved, State Farm’s roughly 1 million Florida policyholders — including 177,624 in Broward, Palm Beach and Miami-Dade counties — could start paying more as early as March. Since Hurricane Andrew in 1992, the insurer has sold few new property policies in South Florida.

State Farm’s proposed increase could be as high as 70 percent in parts of South Florida, according to its rate-adjustment request to the state. The company calculated rates to include a plan of raising $1 for its claims-paying reserves for every $1 in premiums collected.

State Farm has faced the reverse trend in recent years, company spokesman Justin Glover said. Since 2000, for every $1 in premiums collected the company spent $1.20 in claims and other expenses, including salaries and profits.

“I am deeply disappointed by the size and timing of State Farm’s new rate hike request. I believe it is outrageously high,” Sen. Jeff Atwater, R- North Palm Beach, said in a statement.

Atwater, who co-wrote the insurance law passed this year, said rates “must conform with state-approved scientific and actuarial models, not State Farm’s profit goals. No ratepayer should see an increase in their insurance premiums before the filing has been thoroughly examined and passes the strict new tests imposed by the legislature this year.”

Legislation this year and last helped regulators reject rate hikes, bringing prices down last year by a statewide average of 16 percent. Whether the legislation has a long-term effect remains to be seen, and the State Farm case is one test.

State Farm proposed lowering rates by a statewide average of 7 percent last year but cut rates by 9 percent after pressure from regulators. In 2006, the state allowed the company to raise prices by a statewide average of 52 percent.

State Farm is dropping 50,000 policies in coastal areas prone to hurricanes and it isn’t taking on new property insurance policies statewide, except for allowing some policy transfers, according to the company’s rate filing.

“Even with these steps, further action is needed. At present rate levels, the company soon will not have the financial capital to support the risks it has underwritten. Rates will need to rise and/or risk will need to further decrease in order to operate the company in a responsible manner,” State Farm’s filing said.

While the State Farm companies’ net income collectively increased last year by 3 percent — to $5.46 billion from $5.32 billion in — State Farm Florida’s net income dropped about 19 percent, to $108 million from $134 million in 2006. Hurricanes in 2004 wiped out State Farm Florida’s $600 million surplus and the insurer borrowed $750 million from its parent company, Glover said.Bob Hunter, insurance director for the Consumer Federation of America, said it’s no surprise State Farm collected less since 2000 because there were eight hurricanes. He said rate increases could be another blow for consumers already coping with the faltering economy.

“It’s another very troubling cost for something that people to have to buy because banks require it,” Hunter said. “They can’t say ‘Oh well, the price is too high, I’m not going to take it this year’ like you can do with a car or TV.”

Rate increases may come as a shock to consumers but they don’t surprise Sam Miller, executive vice president of the Florida Insurance Council, an industry trade group. State Farm also saw a drop in premiums collected because of a state law that requires insurers to provide discounts for homes that are upgraded to be more hurricane-resistant.

Other insurers are concerned about the dip in premiums as more people upgrade homes, Miller said.

2 thoughts on “Florida homeowners slabbed by State Farm request for 47.1% average rate increase”

  1. It will be interesting to see this unfold. The increase certainly seems significant, however, I am sure SF has plenty of backup for this request. The OIR in FL has made it clear its primary purpose is to depress HO rates.

    I attended a Coastal Insurance Symposium yesterday and one of the panelists waa the Deputy Commissioner for Property and Casualty in FL. She made it clear decisions made in FL must be consumer friendly. Clearly not understanding that “availablility” is a consumer issue.

    The pols iand regulators in FL have a “full bucket of paint and working diligently to get to the corner of the room”.

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