Small insurers step in as bigger companies bail
Jul 28, 2008
East Volusia News-Record--July 27, 2008
By JIM SAUNDERS
Tallahassee bureau chief
TALLAHASSEE — Edgewater retiree Bob Rabren had insured his homes and cars with State Farm companies since 1955.
But when he found out this year that State Farm Florida would drop coverage of his house, Rabren started shopping. He wound up getting homeowners’ insurance from a smaller company — at a cheaper price.
Rabren, 77, is part of a major shift in Florida’s property-insurance market, as State Farm and other big-name companies try to hedge their financial risks and smaller insurers sell more and more policies.
The latest development came this month when State Farm asked regulators for a 47.1 percent average rate increase, a move the company said was needed to shore up its finances.
That request followed State Farm’s decision last year to begin dropping as many as 50,000 coastal policies in 2008, joining Allstate, Nationwide and other major insurers that have jettisoned hundreds of thousands of residential customers.
State Farm said in a regulatory filing it’s "aware of the growing financial burden on Florida property-insurance consumers." But it also said it needs higher rates to support the risks it has taken in insuring about 1 million properties in the state.
"Rates will need to rise and/or risk will need to further decrease in order to operate the company in a responsible manner," the filing states.
But while State Farm and other big companies try to reduce their risks, smaller insurers — many of which are known in the industry as "domestic" insurers — have increasingly taken their place.
"The growth we’re seeing in those companies, the smaller domestics, it’s huge," said Mark Mullin, president of Mullin & Co., an Ormond Beach insurance agency.
Florida’s property-insurance market has been tumultuous since eight hurricanes plowed into the state in 2004 and 2005, causing about $36 billion in insured losses.
After the storms, rates soared and insurers dropped policies, forcing many homeowners to turn to the state-backed Citizens Property Insurance Corp. for coverage.
Lawmakers reacted last year by passing a measure that forced insurers to lower rates — while, in exchange, taking on billions of dollars in insurance risks for the state.
Regulators have scheduled a hearing Aug. 12 to consider State Farm’s proposed 47.1 percent rate increase. The boosts would hit even harder locally, with increases of an estimated 63 percent in Volusia County and between 60 percent and 85 percent in Flagler County.
Meanwhile, Florida Farm Bureau Insurance Companies plan to appear before regulators Wednesday in a hearing on a proposed 28.4 percent overall rate increase. That includes increases of 30.1 percent in Volusia County and 35.6 percent in Flagler County, according to the Farm Bureau.
Officials at both companies said the increases are needed because they have lost money in recent years selling property insurance in Florida. For every dollar in premiums State Farm has collected since 2000, $1.20 has been paid out in claims and expenses, company spokesman Justin Glover said.
But Gov. Charlie Crist and many lawmakers have repeatedly blasted insurers for trying to raise rates, spurring doubts about whether regulators will approve the State Farm and Farm Bureau proposals.
Crist sent a letter to Insurance Commissioner Kevin McCarty after State Farm filed its request saying he is "concerned that such a significant rate increase could create a breaking point for the budgets of some of our fellow Floridians."
State Farm has not announced any further plans to drop policies. But if it or other insurers decide to shrink their residential businesses, customers might be able to find coverage with smaller companies.
Regulators have approved 28 additional companies to insure traditional homes and mobile homes since January 2006, state figures show.
One of the most visible new insurers has been Ormond Beach-based Royal Palm Insurance Co., which started in 2006 and reached agreements to offer coverage to homeowners dropped by Allstate.
As the smaller companies have proliferated, fewer homeowners are relying on Citizens Property Insurance — long described as the state’s insurer of last resort. As of June 30, Citizens had 1.18 million policies, down from 1.3 million a year earlier.
Some state and industry officials say newer insurers can more narrowly target the homes they insure, which helps reduce their financial risks. That can include carefully spreading policies through the state or targeting new homes, which are built to more-stringent construction codes.
"They (the newer companies) are smaller; they’re not overexposed," said Sam Miller, executive vice president of the Florida Insurance Council, an industry group. "They are, in some cases, more efficient because they are smaller."
But others raise concerns about the financial strength of some of the newer companies. They question whether the companies would be able to withstand a barrage of claims triggered by a major hurricane.
Jeff Grady, president of the Florida Association of Insurance Agents, said Citizens Property Insurance has indicated it doesn’t charge high enough rates to cover potential losses. Yet, he said, some companies have taken policies from Citizens and charge lower or equal rates.
"It does make you a little nervous," Grady said.
Tom Zutell, a spokesman for the Florida Office of Insurance Regulation, said the state requires companies to meet financial and management standards before they can write policies. That includes making sure they have enough money to cover potential storm losses.
Rates on the Rise
State Farm Florida and the Florida Farm Bureau insurance companies have asked state regulators to approve rate increases for homeowners’ policies. Here are key points:
· State Farm has asked for an average statewide increase of 47.1 percent. The increases include an estimated 63 percent in Volusia County and 60 to 85 percent in Flagler County.
· The Farm Bureau has proposed an overall increase of 28.4 percent. The increases include 30.1 percent in Volusia County and 35.6 percent in Flagler County.
· Regulators have scheduled a hearing Wednesday on the Farm Bureau request and an Aug. 12 hearing on the State Farm request.
SOURCES: State Farm Florida and the Florida Farm Bureau insurance companies