State Farm Reaches Deal to Stay in Florida
The consent order ends a series of events that began with the state’s denial of State Farm Florida’s ultimate average rate request of 67.1 percent.
Palm Coast, FL – December 16, 2009
South Florida Business Journal – by Oscar Pedro Musibay
State Farm will remain in Florida and has been granted a 14.8 percent rate increase for all homeowners and condominium policies, according to a consent order announced today by insurance officials.
In addition, the insurer, which had threatened to leave the state, will not have to renew up to 125,000 of its 810,416 residential property policies, according to a statement issued by the Florida Office of Insurance Regulation.
The deal “allows State Farm Florida to remain a viable insurer in the Florida market,” Insurance Commissioner Kevin McCarty said in a statement. “This agreement is the product of a long and arduous negotiation process. The final result is beneficial to the people of the state of Florida, and beneficial to the Florida insurance marketplace.”
Toby’s Commentary: And sometimes I wonder why I’ve become such a conditioned cynic.
Coinsurance by mother company
The way State Farm is set up in the state of Florida has it operating as a separate company. To do this they are required to have coinsurance, which they buy from the mother company, at a cost charged against all Florida policy holders. The coinsurance is being calculated on the worst case scenario, a Katrina like storm. They have been told by the state of Florida to get insurance elsewhere at a lower cost, and then they won’t need such a large increase in the Florida policy rates. They do not want to do that because they make money on the coinsurance. The state convinced them to not charge so much, as the state of Florida needs them here, as the many other insurance companies are not capable of surviving a Katrina like storm, and would fold upon one hitting, leaving policy holders with massive unpaid claims. State Farm did get an increase, only because all the other insurance companies did also, to make sure they all were stronger, in case of major storm hits. They still do not have the strength to survive a Katrina like storm, but without State Farm being part of them, they would have had to increase the other companies poliy rates much more. The future cost increases will be subject to the amounts of reserves on the books for all the companies, which builds as the storm seasons pass without occurence. It’s a lot like Health insurance problem, spreading the cost over a wider base yields greater savings, and with State Farm in Florida, the base is larger. As they say,"Like a good neighbor, State Farm is There". State Farm has 21% of the auto insurance in Florida also, and gives discounts for having multiple policies with them.