State Farm Florida: We Will Re-Examine Departure if 'Consumer Choice' Bill Signed

The president of State Farm Florida has told the state's governor the company would "re-examine its options" should a bill allowing well-capitalized insurers to charge unregulated rates be signed into law.

In a letter to Gov. Charlie Crist, Jim Thompson, president of State Farm Florida, said he was asked multiple times if the company would reconsider its decision to leave the Sunshine State property market if the measure, HB 1171, was passed.

"On each occasion," Thompson wrote,"I tried to make it clear that given the company's rapidly deteriorating financial condition, it needed to take prompt action while the company still had the resources to honor its policyholder obligations. That fact has not changed. However, if HB 1171 were to become law, and if the (Office of Insurance Regulation) expediently administers the law in a manner consistent with the legislative intent of its legislative sponsors and supports, State Farm would be willing to re-examine its options."

HB 117, dubbed the "consumer choice" bill, would allow well-capitalized insurers to charge what they want and give homeowners the right to choose. The so-called "consumer choice" bill allows certain insurers to use rates in excess of filed rates so long as the insurer meets one of three conditions: A policyholder surplus of at least $500 million; a surplus of $200 million and a net written premium-to-surplus ratio of 2:1 or lower; and surplus of $150 million with its primary business coming from offering insurance to nonprofit organizations (BestWire, May 5, 2009).

State Farm Florida is currently negotiating with state regulators to agree on a plan that will lead to the insurer's departure from Florida. Early this year the company said it was leaving more than 1 million property insurance policies behind because the company said it cannot remain solvent under current conditions in Florida. Regulators had rejected the insurer's latest rate request for an increase. The insurer intents to stay to sell automobile insurance.

Consumer groups have sent letters to Crist urging him to veto the measure. In addition, Insurance Commissioner Kevin McCarty has warned of the bill's potential adverse effects in the state's property insurance market, specifically Florida's domestic insurers that do not qualify to charge deregulated rates as outlined in the bill.

Most recently a joint letter was sent by the Consumer Federation of America, the Center for Economic Justice, Consumer Watchdog, and United Policyholders. The groups said the bill "is an invitation for insurers to game the Florida regulatory system and abuse consumers."

"There is no evidence or logic that this deregulation will improve the market or the options for Florida consumers, indeed we have seen that such measures simply make things worse," the groups said in a letter. "The idea that this bill offers consumers a choice is absurd."

Florida homeowners will be forced into the state-run Citizens Property Insurance Corp. if the bill is signed, the letter alleges.

On June 18, A.M. Best Co. downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to "bb" from "bbb-" of State Farm Florida Insurance Co. The outlook was revised to negative from stable. This was based on State Farm Florida?s recent "significant deterioration in earnings and risk-adjusted capitalization and the expectation that this deterioration will continue over the near to intermediate term," A.M. Best said (BestWire, June 18, 2009).

The top five writers of homeowners multiperil in Florida, according to 2008 A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 19.7% market share; Citizens Property Insurance Corp., with 18%; Universal P&C Insurance Co., with 8%; USAA Group, with 5.6%; and Tower Hill Group, with 5%.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)