State Farm to cut Florida home insurance rates by 9 percent, pay rebates
Apr 14, 2008
Average drop is 9 percent; refunds also to be paid
By Kathy Bushouse
South Florida Sun-Sentinel
State Farm bowed to pressure from Florida officials by agreeing Tuesday to cut customers’ home insurance prices. The agreement also says State Farm can’t drop a homeowner policy because someone doesn’t buy automobile or life insurance from them.
The state Office of Insurance Regulation launched an investigation into Florida’s largest private property and auto insurer recently after the company made a series of moves, including plans proposed this summer to drop property policies of 50,000 customers who live within two miles of the beach.
The agreement calls for State Farm Florida to trim property insurance rates by 2 percent, saving policyholders $23 million on top of another recent 7-percent price cut. The insurer also must return millions the insurer overcharged customers.
With the state sending a strong message to State Farm, other companies are taking notice.
Though the state insurance department has the power to issue subpoenas to investigate companies, “the systematic use of subpoenas that the governor seems to be directing is unusual,” said William Stander, assistant vice president and regional manager of the Property Casualty Insurers Association of America, an insurance trade group.
Insurance regulators want to know why insurance companies aren’t passing along the savings to customers after the state allowed companies easier access to backup coverage from the Florida Hurricane Catastrophe Fund. The fund offers companies less-expensive reinsurance, which is insurance for insurance carriers.
Despite the expected savings, some insurers have instead asked the state to raise rates. Last week, Allstate Floridian Insurance Co. and USAA — both major players in Florida’s property insurance market — asked the state to approve double-digit average price increases for their customers. That drew another round of criticism from Crist, who vowed during his 2006 campaign to reign in Floridians’ insurance premiums.
“I don’t know what’s going on but it’s ridiculous what’s going on, how they’re taking advantage of our people,” Crist said Tuesday. “Enough’s enough.”
Stander said politics, rather than economics, is dictating the prices companies can charge.
“That is unusual and dangerous, and that’s really the more destructive signal they’re sending,” Stander said.
The savings for State Farm customers announced Tuesday will come when they renew their policies, though some will wait longer than others.
The company’s 7-percent cut took effect June 1, so customers who renewed their policies after that and before the extra 2-percent decrease is implemented won’t see additional savings until their next annual renewal.
In addition to cutting rates and changing how the company chooses the 50,000 customers whose homeowner coverage will be dropped in January, State Farm’s agreement with the state requires the company to return $23 million it overcharged customers to cover a deficit at state-backed Citizens Property Insurance Corp., continue cooperating with state insurance officials as they investigate possible collusion between insurance companies, rating agencies and trade groups to keep insurance prices high in Florida.
The insurer settled its differences with the state, demonstrating “our commitment to staying here in Florida,” said company spokesman Justin Glover. “That’s what we’ve long said is our goal.”
With an agreement reached, state insurance officials called off two days of public hearings in November on State Farm Florida’s plans to drop policies and quit insuring condominium policies in Florida.
State Farm Florida, which has more than 1 million homeowner policies and about 3 million auto policies statewide, is paying $500,000 to the Office of Insurance Regulation and $1 million to the Office of the Attorney General to cover attorneys’ fees.
State Farm has 180 days to figure out how to return to customers the money it overcharged to help cover Citizens’ 2004 deficit.
That money will be refunded, with an additional 5 percent simple interest, though how quickly customers will see those refunds will depend on how quickly the company develops a system to return the money, Glover said.
Glover wouldn’t say what criteria State Farm Florida now will use to decide which customers will lose their property coverage. Customers will receive notices that their policies won’t be renewed starting in January, he said.