Losing the Farm

>>Even if State Farm Florida goes through with its threat to depart the state’s insurance market, Southwest Florida business owners shouldn’t have trouble finding adequate commercial property insurance. But the news is not as good for those who have State Farm homeowners insurance, say local insurance professionals.

On Jan. 27, 15 days after the state Office of Insurance Regulation denied its request for a 47 percent increase in homeowners insurance, State Farm announced that it would discontinue residential and commercial property coverage in Florida over a two-year period.

The insurance carrier claimed that its departure would impact more than 1.2 million policies worth about $1.4 billion in annual premiums.

On March 24, Florida insurance regulators denied State Farm’s request for an administrative hearing in the case. State Farm had the option to file an amended petition for an administrative hearing; the deadline was April 14.

Once the story of State Farm’s possible withdrawal from Florida hit the papers, the phones at Gulfshore Insurance began to ring with State Farm customers looking for coverage, says Jack Powers, senior vice president of sales for the local independent agency. “State Farm’s withdrawal would take place over two years, if it takes place, but some policyholders don’t want to wait,” he says. “They are concerned that capacity might dry up and they don’t want to be on the outside looking in.”

Southwest Florida businesses shouldn’t have any trouble finding commercial coverage, including property, liability, workman’s compensation and auto, says Powers. “There are any number of insurance carriers who would be happy to provide insurance to businesses and are looking to pick up new accounts. We are currently in a fairly competitive market.”

Jeff Grady, president of the Florida Association of Insurance Agents agrees that the impact on the commercial insurance market will be “fairly light,” because about 80 percent of the commercial insurance is written by independent agents.

“What has happened is that the commercial insurance market here is healthy. It’s a free market because [regulators] have allowed companies to compete, so there are a lot more options in the business marketplace for commercial insurance,” says State Farm agent Brian Glaeser. “This is exactly the opposite of the residential market, where they have price controls. They tell us what we can charge, and, unfortunately, it is less than we need to charge to make a profit.”

Grady predicts a severe impact on the homeowners market because State Farm is such a big player in personal property lines. Under the state-approved plan for State Farm’s withdrawal, thousands of homeowners will be moved from State Farm to other carriers in coming months, but some of those carriers might not have as much financial strength to pay off if a major hurricane strikes, Powers says.

Grady predicted that half of State Farm’s 933,140 residential policyholders might end up with Citizens Property Insurance Corp. (Citizens was established as an insurance corporation by the state legislature in 2002 to provide property coverage to Floridians without any other private insurance options. As of March, Citizens had 1.06 million policies in effect. Only 56,878 of those policies were commercial; the other 1 million-plus were residential.)

This would add to Citizens’ risk and could cost taxpayers more money if a major storm were to hit and result in claims that exceed Citizens’ ability to pay.