Some Good Neighborly Greed From the Good Hands People Part 2: State Farm Enters the Florida Fray

Part 1 of this series detailed how Allstate tried to game the system in Florida to fleece consumers. While Allstate was hammering out their settlement with Commissioner McCarty at FLOIR. State Farm decided to make a run at Commissioner McCarty when they filed for a 47% rate increase last month. Hindsight reveals their timing was terrible as Allstate has since agreed to pay a substantial fine, write new policies and cut rates. The cat is out of the bag now and the State Farm rate hearings were big news last week in Florida. It seems State Farm evidently thinks they can pull the same baloney as Allstate and make it stick where Allstate has failed. The news coverage tells a different the story, however. We start with the coverage in the Palm Beach Post:

State regulators appear poised to reject State Farm Florida’s proposed homeowner rate hike of almost 50 percent, announcing at the close of a hearing Tuesday that the insurer had made a series of miscalculations in determining its premium needs.

State Farm overstated its hurricane risk by not fully taking into account its plan to drop 50,000 coastal policyholders, used unauthorized hurricane catastrophe models in determining its rate need and adjusted the models to reflect losses four times greater than what they would have been, said Ed Domansky, a spokesman for the state Office of Insurance Regulation.

Domansky’s comments reflected the line of questioning from a panel of regulators at the three-hour rating hearing who continually challenged the assertions of State Farm Florida that its financial stability depends on the rate hikes.

The panel interrupted company officials several times, insisting that its questions were not being answered.

State Farm officials did not blink, insisting that the more than $4.2 billion the insurer paid customers from the 2004 and 2005 storms had contributed to money-losing operations over the long term.

”State Farm Florida is, in many important respects, like any other business,” said Jim Thompson, president of State Farm Florida. ”It cannot continue to sell a product at below expected costs.”

Deputy Insurance Commissioner Belinda Miller noted that State Farm Florida had paid more than $1 billion during the past two years to its parent company.

The money paid to State Farm Mutual Auto Insurance Co. in Illinois for reinsurance to cover hurricane losses resulted in a profit to the parent company, Miller said, because there were no serious storms in Florida in 2006 and 2007.

Even before the hearing started, Gov. Charlie Crist confidently predicted what Insurance Commissioner Kevin McCarty would do with the State Farm rate hike, which would amount to an average of 47.6 percent statewide and almost 70 percent in parts of Palm Beach County.

“I think he’ll handle this case appropriately, and I think you know what I mean by that: rejecting it,” Crist said.

State Farm’s argument that the rate hike is needed to offset operating losses has “zero” viability, the governor said.

Regulators will give State Farm’s rate hike plan a full review, but it is up to the insurer to justify its rate needs, Domansky said.

State Farm spokesman Chris Neal believes the company did so at the hearing.

”We would be very disappointed if it was rejected,” Neal said.

And Mr Neal has no doubt ascertained the secret location of the lemonade spring.

Next up is this story from the Insurance Journal which contains some quotes from some consumers in attendance proving self pride does exist among the general populace in Florida:

Regulators at a public hearing peppered State Farm with questions about how much money its national parent company was earning and how much it would cost to pay for future storms. State regulators and State Farm officials even disagreed over whether global warming was going to spawn more hurricanes that could slam into the state.

Steve Alexander, an actuary for Florida’s consumer advocate office, said the rate increase should be rejected because State Farm was trying to recover money it had spent on past hurricanes. Eight hurricanes hit Florida in 2004 and 2005.

State law says rate increases must be based on future losses.

Tina Risley, a State Farm customer for the last 36 years who attended the Aug. 12 hearing, also said regulators should reject the request.

“I think they really don’t show a lot of good evidence why it’s necessary,” said Risley, a hospice nurse who lives in St. Petersburg. “I’m getting the impression that they are not very credible with what they are giving.”

State Farm and Allstate have made a mockery of the system in Florida with their bogus rate requests. If greed is not being satisfied despite writing the rules then yes, based on the actions of State Farm and Allstate in Florida we can conclude insurers are greedy. They’re evidently shameless too.

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