Crist hopes panel kills rate hike
Aug 13, 2008
Brevard homeowners would pay 59% more for State Farm coverage
BY PAUL FLEMMING
Florida Today–August 13, 2008
State regulators on Tuesday aggressively grilled State Farm officials asking them to justify their request for an average 47 percent increase in homeowners’ insurance rates.
For State Farm Florida’s 900,000 homeowners policyholders, there are thousands of dollars in higher premiums at stake. The three-hour public hearing will be part of the regulators’ review of the request from State Farm. No decision was made Tuesday.
No property insurance rate increase has been approved by regulators in more than a year, and questioning Tuesday indicated an unfavorable view of State Farm’s request.
Though the insurance company’s rate request represents a 47 percent increase statewide, many counties have a higher proposed rate increase. For coastal counties, State Farm’s proposed hikes are higher.
For more than 36,100 homeowners’ policies in Brevard County, State Farm customers would see a 59 percent increase. Homeowners with a $300,000 house built before 2001 would pay $3,648 more. State Farm’s proposal would charge $9,827 in premiums a year for wind and other-peril protection on such a house.
Four Office of Insurance Regulation officials squared off in a Capitol hearing room at tables a dozen feet from four State Farm executives — under oath to tell the truth — and argued about reasonable profits, discounts for protecting against wind damage, expected hurricane losses, state law and complex computer models.
In addition to higher rates, State Farm also is in the midst of dumping 50,000 wind-damage homeowners’ policies, a process begun in March and previously announced. But executives also revealed that they intend to cancel 15,000 condo policyholders, and an additional 3,000 homeowners will have their wind coverage dropped.
Company President Jim Thompson said lower income from premiums, the higher cost of reinsurance to protect against huge losses and projections of more frequent hurricanes account for the need to raise rates.
"We believe that the 47.1 percent we requested is needed if we are able to stand behind our promises," Thompson said.
Gov. Charlie Crist earlier in the morning said he thinks Insurance Commissioner Kevin McCarty should turn down the rate
"I think he’ll handle this case appropriately and you know what I mean by that — rejecting it, the increase — and I’m pleased that over the course of the past year and a half, rates have dropped an average of 16 percent," Crist said.
Insurance Consumer Advocate Steve Alexander said State Farm failed to justify its request and recommended denial.
The cost of reinsurance was the biggest part of State Farm’s premium breakdown, accounting for 43 percent of its projections.
State Farm Florida pays more than $500 million a year to its parent company, State Farm Mutual, for coverage against catastrophic losses projected for a once-every-250-years hurricane.
Belinda Miller, deputy commissioner of the Office of Insurance Regulation, said that didn’t wash. In years without hurricanes — as in 2006 and 2007 — those reinsurance contracts are lucrative.
"There is a transfer . . . of a half a billion dollars a year," Miller said. "From the average person’s perspective, they would say State Farm Mutual is doing well."
— Bill Cotterell contributed
to this story.