Hurricane insurance hearings create own storm for State Farm
Aug 13, 2008
St. Petersburg Times--August 13, 2008
By Tom Zucco, Times Staff Writer
TALLAHASSEE — When State Farm officials appeared before Florida regulators Tuesday to seek a 47.1 percent statewide average rate hike, Office of Insurance Regulation general counsel Steve Parton zeroed in on why State Farm averaged the results of three hurricane models.
A key component of a company’s rate need, the computer models estimate the dollar amount of losses from a storm.
Parton argued the models cannot be tinkered with, and State Farm was "taking three wrong answers and averaging them together to get a right answer."
"Aren’t you now creating a fourth model?" Parton asked.
"I don’t intend to be confrontational," answered Jeff McCarty, a State Farm vice president. "But each model is approved."
In a sometimes tense three-hour hearing, Florida’s largest private home insurer said it needs the 47 percent rate hike to remain in business. State Farm’s revenue has dropped 33 percent year to date, officials said, because of low premiums and a doubling of discounts it must give policyholders who harden their homes.
"The profit picture for State Farm Florida is nonexistent," said company president Jim Thompson.
But regulators questioned how State Farm could show huge losses even though it bought reinsurance from its parent company, is dropping 50,000 coastal policyholders, and stopped writing new policies in Florida.
"Enough is enough," said Gov. Charlie Crist. "I think he (Insurance Commissioner Kevin McCarty) will handle this case appropriately, and I think you know what I mean by that — rejecting it, the increase."
Parton said the hearing "certainly verified some our of suspicions" about how the company derives its numbers.
If regulators don’t approve the hike, State Farm can refile or appeal to an administrative law judge. Or drop more policies.
But Thompson said the company has no plans to do that. "The plan is to get the 47.1 percent increase," he said, "and then consider our options."