Wexler calls for probe of State Farm rate request
Jul 18, 2008
U.S. Rep. Robert Wexler, a Democrat from Boca Raton, believes State Farm Florida’s request for an average 47.1 percent rate increase deserves congressional scrutiny.
BY BEATRICE E. GARCIA
PHILIP BROOKER / MIAMI HERALD FILE
Miami Herald–July 18, 2008
A Florida congressman called for an investigation into State Farm Florida’s request for a rate increase that averages 47.1 percent.
Although insurance is regulated at the state level, U.S. Rep. Robert Wexler, a Democrat from Boca Raton, believes State Farm’s request “warrants an investigation of possible abusive business practices . . . and Congress must also play a significant role to ensure that consumers are protected.”
The State Farm story generated heavy traffic on The Miami Herald’s website Wednesday evening and Thursday. About 60 consumers left comments about their dismay over the possible rate increase.
The Office of Insurance Regulation already has begun reviewing State Farm’s 526-page filing. A hearing on the rate request is set for Aug. 12 in Tallahassee.
In an explanatory statement published on its parent company’s website, the Florida company said it expects its financial condition to worsen over the next 18 months. It expects that in 2009 it will be paying out $2 in claims and expenses for every $1 in premium income it collects, after reinsurance costs.
Chris Neal, a company spokesman, said that although State Farm was granted a 52.7 percent rate increase in 2006, the company only realized about half of that because it was required to lower rates 9 percent in 2007 to comply with a state law aimed at lowering insurance rates.
That law allows insurers to purchase cheaper back-up insurance from the Florida Hurricane Catastrophe Fund in order to pass on those savings to consumers. The law remains in place through May 31, 2010.
Neal said the company’s rate filing will show it complied with state law but still needs higher rates to maintain its financial position.
A state order in 2007 that requires insurers to double their mitigation discounts for policyholders who harden their homes also had a negative impact on the bottom line, the company said.
”I don’t think they’re going to be able to justify that kind of rate increase to [Florida Insurance Commissioner] Kevin McCarty,” said Sen. Bill Posey, who headed up the Senate Banking and Insurance Committee since late 2006.
Posey noted that while insurers aren’t required to buy the cheaper reinsurance from the catastrophe fund, they’re not allowed to build higher reinsurance costs into their rate filings than what the catastrophe fund charges.
Sen. Steven Geller from Cooper City, who with Posey and other senators helped craft the 2007 special session insurance bill that expanded the state’s catastrophe fund, said it’s up to OIR to reject rate increases if companies can buy cheaper reinsurance from the state.