Smaller Insurers Likely Will Have to Pick Up the Slack in Florida

Feb 27, 2008

The Ledger–Feb. 27, 2008
By Tom Zucco

What happens when Florida’s biggest private homeowners insurance company puts a moratorium on writing new business?

Regulators are hoping there will be enough smaller companies to pick up the slack.

On Friday, State Farm joined Allstate, Nationwide and several other large insurers in a moratorium on new homeowners policies. They’ll insure properties they already have, but no more.

Florida insurance regulators take solace on two fronts: State Farm wasn’t writing that much new homeowners business anyway, and since January 2006, the state has licensed 22 new insurance companies to write policies.

"Having that many new companies come here after the hurricanes of 2004-05 shows an appetite for the homeowners market in Florida," Tom Zutell, a spokesman for the Florida Office of Insurance Regulation, said Monday.

The most recent data available shows that as of Oct. 1, 2007, the new companies represent 8 percent of the homeowners market, or about 325,000 policies. But four of the new companies are scheduled to remove about 250,000 policies from state-backed Citizens Property Insurance this year, bringing the total policies for the new companies to about a half-million by the end of the year.

One of the biggest advantages to being a new company is not having what those in the industry call a legacy book. It refers to longtime policyholders, some of whom have become too expensive for the insurance company to keep. New companies start fresh, with a blank book of business.

"And these new companies are hungry for the business," Zutell said.

Any State Farm policies not picked up by other private insurers would be assumed by Citizens Property.

"I don’t see a big exit out (State Farm’s) doors," Citizens board chairman Bruce Douglas said Monday. Most of the company’s policies are in the interior of the state, not along the coast, where it’s harder to find insurance.

Douglas is more concerned over a separate State Farm decision last year to cut 50,000 coastal policies. Some of those homeowners are in the midst of being dropped.

"Some (homeowners) will go to admitted carriers and some to surplus lines," Douglas said. "And we’ll probably take at least half.

"That’s our territory, I guess."