Ripples Felt From State Farm's Planned Florida Departure

 

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Copyright 2009 A.M. Best Company, Inc.All Rights Reserved BestWire

February 23, 2009 Monday 09:43 AM EST

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Ripples Felt From State Farm's Planned Florida Departure

Chad Hemenway

TALLAHASSEE, Fla.

A State Farm Florida customer, faced with the knowledge his policy would eventually not be renewed as part of the insurer's withdrawal plan, recently signed a policy with a domestic carrier. Problem is, he got a letter from his mortgage company.

"The policy you provided is written by an insurance company which does not meet our financial rating requirements for insurance companies," the letter said.

The issue is one of many surfacing as the ripple effect from State Farm Florida's withdrawal plan is felt.

State Farm Florida said in late January it planned to withdraw from the property insurance market in Florida by 2011, eventually leaving more than 1 million policies behind. The plan was approved by Insurance Commissioner Kevin McCarty, with certain conditions.

Ratings of insurers are important to mortgage lenders. Homeowners looking to switch from State Farm, might have to do a little more work either on their own or with agents to assure lenders that the new company they are signing with is financially sound.

A.M. Best Co. does not rate a majority of the new Florida domestic companies but not because of their size or youth. There exists a rating formula for start-up companies but, "an important component of the evaluation process requires an interactive exchange of information with the insurance company's management," according to Best's Key Rating Guide.

Many of the domestic insurers cede to reinsurers with strong credit ratings. For example, Security First Insurance outlines its entire reinsurance plan on its Web site, www.securityfirstflorida.com.

Ed Domansky, spokesman for the Florida Office of Insurance Regulation, said regulators examine the solvency of companies doing business in the state on at least a quarterly basis. "If a red flag goes up, we can request monthly reviews or even send an examiner to the company," he said.

Companies are not permitted to use the existence of the Florida Insurance Guaranty Association "for the purpose of sales, solicitation, or inducement to purchase any form of insurance," according to Florida law.

John Kuczwanski, spokesman for the state-run Citizens Property Insurance Corp., said a task force assembled to review Citizens is recommending that law be repealed to allow insurers to tell consumers they are backed the guaranty association, given the state's attempts to relieve Citizens of some of its policy load and the newest news of State Farm's withdrawal.

In the meantime, Kuczwanski is promoting the Florida Market Assistance Plan, a service offered by the state since 1985 that is currently housed at Citizens. Found at www.fmap.org, what Kuczwanski called a "matchmaking service" finds insurers for residents after they enter various information about their property.

FIGA has said the law exists so consumers do not choose lower quality, inexpensive insurance because they know the state will back up the company.

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

February 24, 2009

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