Following a denial for a substantial rate hike, State Farm announced plans Tuesday to stop offering property insurance to 1.2 million Floridians within two years.
The insurance giant plans to drop 470,000 policies the first year.
Gov. Charlie Crist told the St. Petersburg Times that they won’t be missed. “They probably charge about the highest rates in the state. I think Floridians will be much better off without them.”
State Farm blames the hurricanes of 2004 and 2005 for its insolvency. The company reportedly had to receive a bailout from its parent company in 2005 bring its surplus to $561 million. State Farm also blames the state-imposed generous discounts for property owners who protect their homes against hurricane damage.
State Farm Florida president, Jim Thompson, says the insurance giant is losing about $20 million a month in Florida and will be insolvent by 2011.
“We regret the impact this will have on our customers, employees and agents in Florida,’’ Thompson said to Tampabay.com. “However if we had any further weakening of our financial situation, we would not have been in a position to pay all of our claims going forward.’’
The insurer would like to keep auto, life and health insurance, but the state Legislature could force the company to sell all or nothing. Two years ago, the company shifted auto policies to its parent company, State Farm Mutual automobile Insurance Co, which may give it a loophole.
Who Is Hurt
Hardest hit will be not only condo and homeowners, but owners of boats, personal article that were insured, business property and insurance agents.
About 800 State Farm agents will see their income slashed by at least one-third, according to the St. Petersburg Times, which examined company documents. There are an estimated 500 State Farm Florida employees directly involved with the property insurance business and another 4,500 who work directly for its agents.
Where will people turn for coverage?
Allstate is not writing new policies and smaller companies have not had to pay on hurricanes. Citizens Property Insurance Corp is a state-backed company set up in 2002 when the state merged two existing state-backed insurance pools, and is now the largest property insurer in the state. A rate freeze is set to expire next year.
Consumers can look online to see how insurance rates compare at www.shopandcomparerates.com, a Web site operated by the state Department of Insurance Regulation.
Insurance Commission Kevin McCarty, who must approve the departure, says his office may work on legislation to limit the number of policies a company can drop in one year. And McCarty will determine if State Farm is breaking any laws by pulling its property coverage out of the state.
The American Association for Justice in last year’s, Tricks of the Trade report on the insurance industry reminds us that it pays CEOs more than any other industry and enjoys average profits of $30 billion a year. State Farms chairman received an 82 percent raise in 2007 amounting to $5.26 million according to the Insurance Journal.
The absence of any major catastrophes helped State Farm generate a record $5.32 billion profit in 2006. #