According the the Insurance Information Institute Mississippians pay the 6th highest rates for homeowners insurance (HO) in the country in a state with 6 coastal counties of 82 total. We are one slot ahead of earthquake prone California, three slots below the Florida, the entire state of which is prone to Hurricane wind damage. By way of contrast South Carolina’s HO rates come in at number 16 despite being low and having a very developed coastline. North Carolina, with it’s famous outer banks of inhabited barrier islands comes in at 33 while Georgia, home to historic Savannah check in at 27. Texas and Louisiana check in with the highest and second highest HO rates respectively. While our good friend Sup can (and hopefully will) list the variety of reasons homewoners insurance rates vary so much from State to State for purposes of the remainder of this post I’ll operate under the assumption that in the complexity of the insurance marketpace and the associated state by state market fragmentation lies opportunity. Such as the opportunity for an insurer with a nationwide and global viewpoint to generate additional profit via ye old money change by statutory fiat. Perhaps this post will illustrate why.
We will begin with a compare and contrast between how Florida Governor Crist has handled big insurance versus our elected insurance commissioner’s genuflect and beg approach. The Mississippi GOP has chosen to directly subsidize our wind pool with the money going to buy more reinsurance. Florida, OTOH now requires transparency and learned first hand that bending over backwards for insurers didn’t mean the citizens got a good deal. Does State Farm’s announcement it was leaving Florida last week really mean Mississippi’s insurance market (where State Farm is refusing to write new policies) is “healthier” than Florida’s (where the Farm is pulling out)? Let’s start with Commissioner Chaney’s press release on that topic:
Commissioner Chaney also states in the letter that the Mississippi insurance market is in a very different and much healthier position than the Florida market.
“The Mississippi Insurance Department has worked very diligently to avoid finding Mississippi in the same situation as Florida,” Chaney said.
Do average Mississippians buy into that? Let’s hear what they have to say:
“The politicians have given the insurance companies a license to steal.”
“They are a full line insurance company. They should not be allowed to cherry pick. Our insurance commission should run them out of the state.”
“Time to take the policies for my life insurance, wifes life insurance, the 3 vehicles that are insured, the RV’s insurance and health coverage somewhere else. If enough policy holders would actually do this also, we could run them off the coast. Insurance Commission won’t do it.”
“Why are we allowing the insurance companies to hold the residents of the Mississippi hostage? For decades, we’ve paid whatever they have requested, and when the first major catastrophe hits, this is the treatment we receive. If State Farm is so adamant in their position in the way they do business in our state, why are they still here? Why are we accepting this treatment?”
The difference is striking and begs a natural question. Are coasties drinking all the koolaid or are our elected officials here in Mississippi peeing on our legs claiming rain? The press and editorial boards across Florida are giving this insurance thang a hard looksie (H/T Steve). First off is columnist Michael Mayo of the Orlando Sun Sentinel who comes to the conclusion we need a good multi peril solution in his column “How do we cure Florida’s sick property insurance system?”:
Our predicament: We have a pre-existing condition that few private insurers want to touch. Namely, we’re prone to hurricanes.
And Citizens has become a ticking time bomb, the equivalent of a health insurance firm that mostly caters to the ill. Nearly half of Citizens’ 1.1 million policies are in South Florida. With roughly $422 billion in property exposure, Citizens has been shedding policies amid concerns that it will be undercapitalized if we’re hit by The Big One.
The refrain I keep hearing from industry people: Florida’s windstorm rates aren’t “actuarially sound,” meaning they should be much higher to cover the risks of a big storm.
“If it’s true that we’re going to have more hurricanes, then the economics of living in Florida have changed,” said Brent Winans, a vice president at Plastridge Agency, a regional insurance brokerage in Delray Beach. “It’s going to cost more. None of us want to hear that.”
But with foreclosures already at record levels and the economy and real estate market in tatters, higher insurance premiums can only make a bad situation worse.
Steve Geller, a former state senator, said the best way out for Florida is the creation of national catastrophe insurance. The federal government already runs a National Flood Insurance program. He said adding hurricanes, tornadoes and earthquakes to the mix would be proper.
“President Obama should put it in the economic stimulus package,” he said.
But national disaster insurance has proven to be a tough political sell, especially in the U.S. Senate. The familiar cry: Why should low-risk states like North Dakota and Nebraska subsidize us for our hazardous living choices?
Geller noted Floridians pay far more into the national flood insurance pool than they get out, and that smaller states get a higher per capita share of federal tax money than bigger states.
Next up is a some staright press coverage of Florida Farm pullout fallout courtesy of the Palm Beach Post:
For 20 years, Mary Wilkinson believed in State Farm’s famous “Like a good neighbor” slogan.
The state’s largest private insurer covered not only her home, but also her three automobiles.
“I entrusted everything to this company, and they totally sold out the people of Florida,” the Jupiter Farms resident said.
She’s not alone in those sentiments.
More than 1 million State Farm Florida policyholders awoke Wednesday morning to the reality that their homeowners insurer is dropping that line of coverage – and them along with it.
………the insurer’s explanation seemed to fall on the deaf ears of hundreds of thousands of irate, confused and desperate customers Wednesday.
Wilkinson, for one, called a new insurance agent Wednesday morning about switching her homeowners coverage. Her policy doesn’t expire until October – meaning State Farm wouldn’t be dropping her under its withdrawal plan until the fall of 2010 – but Wilkinson said she did not want to waste time.
“I’m concerned about finding a new policy,” she said.
Area insurance agents said they were swamped Wednesday with phone calls from concerned State Farm policyholders.
“People are panicking,” said Kenn Nornberg, president of the Independent Insurance Agents of Palm Beach County and owner of Arden Insurance Associates in Lantana. “The consumer is very concerned that they won’t be able to get coverage.”
The Celedinas Insurance Group in Palm Beach Gardens reported a 25 percent spike in calls. The state Office of Insurance Regulation’s insurance shopping Web site (www.shopandcomparerates.com) received 3,809 visitors on Wednesday, compared with an average of 250 to 300 a day, spokesman Tom Zutell said.
A private consumer insurance Web site, Home Insurance Buyers Guide LLC, reported that it received 2,000 visitors on Wednesday compared with about 300 on a normal day.
“People aren’t going to wait until November when State Farm starts dropping policies,” said Michael Letcher, president of Lake Worth-based Home Insurance Buyers Guide. “They want out now.”
The question on everyone’s mind: Just how hard will it be for State Farm homeowners policyholders to find replacement coverage?
Wilkinson, for example, said she was concerned because her house in Jupiter Farms has a wood frame and is 25 years old.
Although she was relieved that the agent she contacted said he could place her home with another company without a problem, Wilkinson said she still plans to drop her State Farm auto coverage.
Once again we see the trend in insurance to socialize losses sticking taxpayers with the bill in the process as the story continues:
Many homeowners with older residences may not be as lucky as Wilkinson. Private insurers have been increasingly reluctant to insure older structures because they are more susceptible to damage, Palm Beach Gardens insurance agent Ray Celedinas said.
He said companies probably will toughen eligibility requirements to cherry-pick the least risky State Farm policyholders.
“People with older homes will probably end up in Citizens,” he said.
Sean Michael Shaw, the state’s consumer insurance advocate, said he was concerned that undercapitalized private insurers will drop existing customers and replace them with State Farm policyholders who own newer homes, all in an effort to lessen the chances of losses.
“State Farm leaving could cause a huge disruption to the market,” he said.
Predictably a few insurers used the news to “poor mouth” again agitating for rate ups despite posting huge profits for the past several years:
John Auer, chief executive of ASI property insurance group, said if the state doesn’t want large numbers of State Farm policyholders ending up in Citizens, it must allow private insurers to raise rates.
Auer, whose ASI includes American Strategic Insurance Co., referred to State Farm’s claim that it was losing $20 million a month insuring homes in Florida.
“The only way companies can absorb (State Farm’s) customers is to charge higher rates,” he said, adding that insurance regulators have been reluctant to grant rate increases.
But not all insurers were as pessimistic.
Security First Insurance Co. President Locke Burt posted a rate comparison on his Web site showing that State Farm policyholders could save more than half on their premiums by switching to his company.
Security First insures 60,000 policyholders but has the capital to double its customers immediately, he said.
In the end is talk of all the market complexities and related industry jargon designed to obscure a larger truth? The Palm Beach post’s editorial editor Randy Schultz cuts through the fog and comes to some striking slabbingly conclusions in his column “Like a bad neighbor…”:
Does Florida intend to let private property insurers cripple this state?
That question isn’t meant as hyperbole. To get a mortgage for residential or business property, you need insurance. In Florida, you often need two policies: one for wind coverage, and one for the standard fire, theft and liability. If the cost of insurance is too high, you won’t buy or build. If the real estate market withers, Florida withers.
So it was baffling to see, once again, the state’s leading business groups stick up last week for a big insurer threatening Florida. This time, the “victim” was State Farm, after the company announced that it would dump its nearly 1 million homeowner policies. The Florida Chamber fretted and praised State Farm for its corporate service. Associated Industries of Florida blamed government regulation.
Rep. Alan Hays, R-Umatilla, even ventured – as he did in 2006 – that the state just should stop regulating insurance and let the market sort it out. Maybe from Umatilla the property insurance market looks fine. Maybe if you overlook Wall Street full deregulation looks fine. To most of Florida and the real world, Rep. Hays’ idea sounds crazy. Unfortunately, Rep. Hays is vice chairman of the House insurance committee.
When the state successfully stood up last year to Allstate, The Post editorialized that the market had struck back. The same has to happen with State Farm. See, the company doesn’t want to leave Florida. State Farm wants to leave the hurricane insurance business, because there’s risk, and stay in the auto insurance business, because there’s very little risk.
And isn’t it curious that State Farm wants to leave not after a bad storm season but after three straight mild seasons? Isn’t it curious that State Farm wants to leave even though the company boasted that its pre-tax property/casualty profit in 2007 was $5.1”billion? Isn’t it curious that State Farm wants to leave just as the nation’s insurance commissioners – those would be the folks on the consumers’ side – reported that companies insuring Florida residences made nearly 40 percent in profit for 2007?
Here’s a theory as to why State Farm’s timing may not be curious. Insurance company finances can depend heavily on investments. We know what has happened in the markets over the past few months. The last two medical malpractice insurance “crises” came in the spring of 1988 – after the market crash of October 1987 – and in the summer of 2003 – as the markets were dipping to a post-9/11 low.
State Farm and its defenders blame government regulation. But for the 15 years after Hurricane Andrew in 1992, state government did lots of favors to keep private property insurers here. The state put all taxpayers on the hook for as much as $28”billion in losses the companies couldn’t pay. The state set up an appeal process for rate requests, and the industry usually won. The state let the industry get out of covering damage from mold, sinkholes and wind-driven water. The state set up an insurer to take high-risk hurricane policies. The state spent $250 million to help people harden their homes. The state spent $250 million to lure more insurers.
But for two years under Gov. Crist, things have been different. When the state approved a plan to help the insurers lower rates, the Legislature required that companies pass on savings to consumers. Last year, the state threatened Allstate with loss of its auto business to make the company back down on a ridiculously high rate request. Rate requests now go to administrative law judges. One such judge just agreed with the Office of Insurance Regulation that State Farm didn’t deserve a 47 percent increase.
Property insurance is a bigger problem in most of Florida than property taxes. Private insurers get to make a profit. But for a service so crucial to Florida, the profit should be on the state’s terms, not the insurers’ terms. The Legislature doesn’t represent the insurers that want to dish it out. The Legislature represents the state, which should not sit back and take it.
Nowdy I would submit others Do C It and that list grows by leaps and bounds each and every day. And speaking of that Florida administrative law judge it is appropriate to end this lengthy post with a trip down slabbed’s memory lane on an earlier post we did on the Farm’s Florida financial shellgame:
Transactions between State Farm Mutual and State Farm Florida for reinsurance and credit risk provisions totaling approximately $561.8 million, when viewed in the light of economic reality………may be transactions which State Farm Mutual engages in with itself and which lack any independent economic significance. Transactions with no independent economic significance would be sham transactions which may distort the economic costs of the reinsurance and credit risk provisions purchased from State Farm Mutual. Such economic distortions may enable the group to derive a rate advantage from the legal form in which State Farm Mutual chooses to do business in Florida.