Small insurance companies vie for State Farm customers

Feb 10, 2009

Treasure Coast Palm--February 9, 2009

By Julie Patel, Sun-Sentinel

Many of Florida’s 1.2 million State Farm policyholders aren’t waiting to find new property insurance after the surprise announcement last month that State Farm is pulling out of Florida.

And the dozens of small insurers that have entered the market in recent years are jumping at the chance to find new customers.

Sol Woloshin, a longtime State Farm customer who lives in Plantation, dropped his policy the day after the announcement and signed up with Boca Raton-based People’s Trust.

“I feel much better, sure I do, now that this is resolved,” he said.

Over the 60 years State Farm has sold property insurance in Florida, it has built a loyal customer base with many homeowners who were willing to pay more for coverage and also purchased car and other insurance lines from State Farm. That’s why other insurers are aggressively courting State Farm customers before they’re dumped into state-backed Citizens Property Insurance Corp.

“Smaller insurers view this like shopping at a going-out-of-business sale at Nieman Marcus,” Friedman said. “Once they get dumped into Citizens, it is like shopping at a discount store – the good stuff has already been picked through.”

People’s Trust has taken 1,500 State Farm policies since State Farm announced its departure and is looking to expand by up to 455,000 policies in the next two years. People’s Trust founder Mike Gold said he’s betting on Florida when large insurers aren’t because “we disagree about the math.”

The math in catastrophe-prone states makes it cheaper for smaller companies because the rates for disaster backup coverage can be lower depending on the size of the company, said former state Sen. Locke Burt, who helped form Fort Lauderdale-based Security First Insurance Co. in 2005.

That’s why his company announced last week that it will almost double its policy count of 60,000 by taking the first 50,000 State Farm policies that come its way from all regions of the state.

Insurance Commissioner Kevin McCarty said he’s “optimistic that over two years, the market can absorb all of the State Farm customers,” said Office of Insurance Regulation spokesman Ed Domansky.

As dozens of insurers supplant a few insurance giants, Florida’s property insurance market is getting closer to where it should be in the eyes of many of its leaders. Office of Insurance Regulation documents show that private insurers in Florida have the capacity to add $1.5 billion in premiums, slightly more than the $1.4 billion in premiums that State Farm Florida is surrendering.

McCarty is expected to approve State Farm’s two-year exit strategy in the next month or so, with conditions that would ease the transition for policyholders. State Farm would give customers 180 days notice and start dropping policies when they’re up for renewal.

State Farm executives say they want out of Florida’s property insurance market in part because the state denied their proposed rate increases. They told Florida legislators last week they hope to develop a program that allows State Farm agents to sell policies for other insurers that would otherwise go to Citizens.

State Farm said it’s losing $20 million per month, in part because of discounts it’s giving under state law to customers who fortified their homes against hurricanes. The company earned $134 million in 2006, $108 million in 2007 and lost $199 million in 2008, largely due to its agreement with the state last year to refund $120 million to customers who didn’t receive discounts. As of late last year, it had $621 million in reserves.

April Ruxton, a customer service representative for a State Farm agency in Plantation, said she understands why the insurer wants to leave but it doesn’t make the uncertainty of whether she’ll have a job in a few months any easier.

“They’ll probably have to let a lot of us girls in the office go … It’s going to be devastating,” Ruxton said.

Mary Hames-McBride, whose North Lauderdale home has been insured by State Farm for three decades, said she feels “betrayed” and plans to find a new insurer for her home and car.

“They nearly doubled my homeowner premiums two years ago, and I had no other choice at the time,” Hames-McBride said. “Now that other insurance providers have begun offering homeowner coverage to Floridians, I am not stuck with State Farm.”