State Farm Agents, Policyholders 'Hold Tight' Together Chad Hemenway

State Farm agent Craig Dewhurst is telling his clients to "hold tight" until State Farm Florida mulls the conditional approval it received from regulators of its plan to withdrawal from the property insurance market. Like other State Farm agents in the state, Dewhurst is holding tight as well.

"We're all in survival mode -- us and the customers -- and I tell them we're in this together," said Dewhurst, an agent for nine years. Prior to that, Dewhurst said he worked in management for State Farm for a decade.

"There's a lot of uncertainty, and the possibility that I will lose 40-50% of my business is not comforting," he said from his agency in St. Augustine, Fla. "Most policies are good until 2010 or 2011 so right now is not the time to panic because no one knows what the details will be."

Dewhurst, like the State Farm Florida policyholders he assists, is waiting -- as are more than 800 State Farm Florida agents. The Florida Office of Insurance Regulation on Feb. 13 approved the insurer's plan to withdraw from the market but Insurance Commissioner Kevin McCarty attached certain conditions to the approval, including one that State Farm allow its agents to write with other companies.

"I'd love to write for some reputable companies," said Dewhurst, "but that would challenge the State Farm agent agreement, which has been a competitive advantage for many years."

State Farm agents are independent contractors who only sell State Farm policies but they can also place policies with the state-run Citizens Property Insurance Corp, because the company has not written new policies in the state in several years. Dewhurst said he puts 20 or 30 policies a month into Citizens.

In a letter to state Chief Financial Officer Alex Sink, dated the same day the OIR's conditional approval was given, State Farm President Jim Thompson said the company "extended permission for State Farm Florida agents to service policyholders who move first to Citizens (Property Insurance Corp.) and to continue serving that business later if it is removed from Citizens by a state-approved 'take-out' insurer" (BestWire, Feb. 18, 2009).

However, that is not going to happen. The conditional approval from McCarty forbids sending policyholders to Citizens. State Farm "shall not, directly or indirectly, place any of the policies in Citizens," the OIR order reads, continuing, "State Farm shall not interfere with the direct placement of its policies by its agents into other private insurance companies."

Dewhurst said the "claims paying ability" of the 16 companies in Florida designated to take-out policies from Citizens are all in question. He said agents were meeting with Sink to ask why the quotes they have been getting from take-out companies are "up to 200% higher than us." "You will see what a lot of people have been talking about when we're hit with a big storm," said Dewhurst. "Florida should give consumers the choice to pay what they want."

State Farm plans not to renew the last of its 1.2 million property insurance policies during the fourth quarter of 2011. The insurer's withdrawal plans were submitted about two weeks after McCarty issued a final order denying a 47% average statewide rate increase State Farm first filed in July 2008 (BestWire, Jan. 12, 2009).

In his letter to Sink, Thompson also said State Farm was "working with officials at Citizens in support of an expanded 'market assistance plan.' The purpose of this plan is to help current State Farm Florida policyholders whose policies are nonrenewed to find replacement coverage with other insurers before they are placed in Citizens."

Citizens spokesman John Kuczwanski said State Farm had been in "preliminary talks" with Citizens as it planned to leave the market but "no specifics were discussed." Citizens has not spoken to State Farm since the OIR was issued.

State Farm spokesman Phil Supple said the company was still assessing the OIR order. State Farm has 21 days to respond to the conditions.

"As far as the issue of agent assignment, it would be premature to discuss it publicly until we answer to the OIR," Supple said.

Until then, Dewhurst takes dozens of calls a day from State Farm customers.

"They are mad at us at first but once we educate them on the facts, they want to write the governor and insurance commissioner," Dewhurst said. "A total of only six customers out of hundreds of calls have canceled."

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)
Copyright © 2009 A.M. Best Company, Inc. State Farm agent Craig Dewhurst is telling his clients to "hold tight" until State Farm Florida mulls the conditional approval it received from regulators of its plan to withdrawal from the property insurance market.