State Farm Fla. Exec to State CFO: Agents Could Place Policies Directly in Some Companies

Feb 19, 2009

A.M. Best–February 18, 2009

by Chad Hemenway

In a letter to Florida Chief Financial Officer Alex Sink, State Farm Florida’s president said the company is working on a plan that would allow its agents to find replacement coverage with “keep-out” insurers before they are placed in Citizens Property Insurance Corp.

State Farm Florida President Jim Thompson said in the letter State Farm is “working with officials at Citizens in support of an expanded ‘market assistance plan.’ The purpose of this plan is to help current State Farm Florida policyholders whose policies are nonrenewed to find replacement coverage with other insurers before they are placed in Citizens.”

Thompson in the letter said plans are to allow agents to contract with government-approved keep-out insurers once the market assistance plan is approved by the OIR.

State Farm spokesman Phil Supple said the company just received approval of its withdrawal plan from the Office of Insurance Regulation on Feb. 13 and the insurer continues to assess conditions Insurance Commissioner Kevin McCarty attached to the approval, including one that State Farm allow its agents to write with other companies. “We are not allowing them to hold their agents captive,” McCarty has said (BestWire, Feb. 13, 2009). State Farm has several weeks to respond to the conditions contained in the OIR approval.

“As far as the issue of agent assignment, it would be premature to discuss it publicly until we answer to the OIR,” Supple said.

In the letter, Thompson said State Farm Florida recognized the impact its withdrawal will have on the market, which is why State Farm has “extended permission for State Farm Florida agents to service policyholders who move first to Citizens (Property Insurance Corp.) and to continue serving that business later if it is removed from Citizens by a state-approved ‘take-out’ insurer.”

That statement is in line with public comments from the company following McCarty’s conditional approval of the withdrawal plan. State Farm Florida already allows agents to service policies that are transferred out of Citizens to 16 OIR-approved companies (BestWire, Feb. 13, 2008).

Following State Farm Florida’s late January announcement that it planned to leave the state’s property insurance market by the end of 2011, Sink sent Thompson a letter before OIR approved the plan. In her letter, Sink called the company’s contracts with agents “inappropriate” considering the circumstances and she urged the company to immediately let its agents sell other insurance. State Farm said at the time that allowing agents to sell policies with other companies not approved as take-out companies is “currently not an option” (BestWire, Feb. 4, 2008).

State Farm agents are independent contractors who sell State Farm policies. The company’s withdrawal plan does not include its automobile insurance products.

Currently, State Farm agents place a policy with Citizens first before it can be picked up by a take-out insurer. Once a policy is identified by a take-out company, it sends a letter to the homeowner notifying them that a policy with a private insurer is possible. State Farm agents can continue to assist customers in making a decision to enter the private market with a take-out company or stay with Citizens.

The state was holding hearings about the use of insurance scoring in the rate process.

State Farm Florida Insurance Co. currently has a Best’s Financial Strength Rating of B+ (Good).

In 2007, the top five writers of homeowners multiperil in Florida, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 21.3% market share; Citizens Property Insurance Corp., with 20.5%; Universal P&C Insurance Co., with 6.1%; USAA Group, with 5.2%; and Tower Hill Group, with 4.4%.