NEWS SERVICE OF FLORIDA: Insurance Commissioner Approves State Farm Withdrawal with Conditions
February 13th, 2009
THE NEWS SERVICE OF FLORIDA--February 13, 2009
By KATHLEEN HAUGHNEY
THE CAPITAL, TALLAHASSEE...... State Farm, the state's largest private property insurer, will be allowed to pull out of the Florida property insurance market, the state's insurance commissioner announced Friday.
The company announced last month that it was being forced to retreat from the property insurance market by its inability to get approval for higher rates. Company officials said huge losses after major hurricanes made it unprofitable for the company to write policies in the state without the higher premiums.
Insurance Commissioner Kevin McCarty approved a withdrawal plan by State Farm over the next two years with several conditions. The company's policies must be transferred to private companies, not Citizens Property Insurance, the state's last-resort insurer, and its agents must be free to write policies by other insurers.
McCarty also said the Office of Insurance Regulation has been negotiating with 15 companies that have agreed to take up the bulk of the policies written by State Farm. He said that most policy holders will be able to receive new policies at private companies at or below the rates offered by Citizens - so, for policyholders, the situation was actually looking up.
"Quite frankly, State Farm has been acting in a condition hazardous to the policy holders and hazardous to the people of Florida," he said.
McCarty vowed that the bulk of the policies wouldn't be thrust into Citizens, which has come under the microscope of state officials worried that it wouldn't be able to pay its claims if a massive hurricane hits the state. A three year rate freeze has put Citizens' rates below the market average, and if they were not able to pay their claims during a hurricane, Floridians could face assessments on their policies or higher taxes to make up the difference.
Florida's Chief Financial Officer Alex Sink said via a news release that she was pleased with the provisions in McCarty's plan, including one that says State Farm must allow its agents to write policies for other companies.
State Farm Florida's more than 800 agents are not employees of the company, but independent contractors. Under their contracts they can only sell policies for State Farm or place them in state-backed Citizens Property Insurance.
"Today's news brings clarity to thousands of Floridians who can now begin planning their insurance transition from State Farm Florida," Sink said. "It is appropriate to hold State Farm Florida to high standards and require an orderly transfer within Florida's private property insurance market."
State Farm released a statement following OIR's announcement saying it was pleased with the commissioner's quick decision on their proposal to withdraw from the state and that it needed to further study his conditional plan.
"We hope to have further conversations with the OIR to create an orderly process that is best for our customers, our agents and the marketplace," the release read.
How the withdrawal plan may affect the company's ability to write auto insurance is still unclear. A state law dictates that some companies that sell property insurance in other states, but not Florida, are not allowed to write auto insurance here, but it's not clear whether that will apply to State Farm.
McCarty declined to identify the 15 companies he says are financially able and willing to take over many of the policies, saying the negotiations were ongoing.
He also said that regulators had improved increases in premiums for State Farm in the past, thinking it would help keep them here. McCarty said State Farm's property insurance rates have gone up more than 500 percent since Hurricane Andrew in 1992.