State Farm Florida Withdrawal OK'd, but Insurer Must Let Agents Write for Other Companies Alyn Ackermann

Florida’s Office of Insurance Regulation has approved State Farm Florida’s plan to withdraw from the property insurance market in the state within two years, but the company is barred from penalizing policyholders for terminating their contracts early and from preventing its agents from working with other companies.

As a condition of the approval, the company must surrender its state certificate to write insurance within 30 days, said Florida Insurance Commissioner Kevin McCarty.

Most State Farm policyholders will be able to find coverage in the private sector, where 30 to 40 companies have begun writing new business over the past two years, and will not have to utilize the state’s insurer of last resort, Citizens Property Insurance Corp.

“I wouldn’t be approving the withdrawal plan if I didn’t believe there was capacity in the private sector,” McCarty said in a press conference.

He said there are “sensitive negotiations going on” with approximately 15 companies about taking over State Farm Florida’s business.

McCarty said State Farm Florida has “warehoused” more than 140,000 policies in Citizens, allowing its agents to place policies in Citizens but not write new State Farm policies.

“We’re not going to allow them to warehouse their policyholders in Citizens, which is their plan,” he said.

McCarty’s order bars the company from interfering “with the appointment of its agents to other private insurance companies to place State Farm Florida policies directly with those other private insurance companies.”

Earlier this month, the company said it was not considering relaxing the contracts it has with its 826 agents (BestWire, Feb. 4, 2009).

“We are not allowing them to hold their agents captive … There are a number of companies that would be glad to use their agent force,” McCarty said.

In a statement, State Farm Florida said it will study the OIR order “to create an orderly process” and said “we do appreciate its quick consideration of the plan.”

“It is our sincere hope that we can work with the OIR to establish a way for State Farm agents to service policies directly out of State Farm Florida into OIR-approved companies,” the statement said. “Today, State Farm Florida already allows State Farm agents – with state government’s backing – to service policies that are transferred out of Citizens to 16 OIR-approved companies.”

The National Association of Insurance and Financial Advisors-Florida issued a statement approving of the order, which it said “will benefit consumers as well as the State Farm agents, their employees and their families.”

Another condition in the order prohibits the company from penalizing policyholders who terminate their State Farm contract to obtain other coverage. It states that State Farm Florida must “issue pro-rata refunds of premium to any policyholder seeking to voluntarily cancel or nonrenew a policy and will not short-rate the return premium for any policy in any line, whether it be automobile, boat, or property insurance coverage.”

McCarty said State Farm can appeal his order within 21 days, but said the requirement to give up its certificate in a month was not truly an issue.

“They will continue to do business, their policyholders will be insured, but of course they’re not writing new business. They’re abandoning 700,000 policyholders in the state of Florida.”

The order also requires State Farm to “consider all offers to buy or assume all or part of its business” and to send OIR a copy of any offer within 48 hours.

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 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).

Following the decision, the company warned of a "deteriorating" financial condition in Florida, noting in a statement that over the past 12 months, State Farm Florida's surplus has declined from $820 million to $621 million, despite not suffering any major catastrophes in the past year. According to State Farm, since the year 2000, its Florida unit has had a combined ratio of 121, and suffered a $1.2 billion underwriting loss this decade. The company said that under current conditions, it would be insolvent by 2011 (BestWire, Jan. 27, 2009).

State Farm Florida Insurance Co. currently has a Best's Financial Strength Rating of B+ (Good).

In 2007, the top five writers of homeowners multiperil in Florida, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 21.3% market share; Citizens Property Insurance Corp., with 20.5%; Universal P&C Insurance Co., with 6.1%; USAA Group, with 5.2%; and Tower Hill Group, with 4.4%.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)
Copyright © 2009 A.M. Best Company, Inc. Florida’s Office of Insurance Regulation has approved State Farm Florida’s plan to withdraw from the property insurance market in the state within two years, but the company is barred from penalizing policyholders for terminating their contracts early and from preventing its agents from working with other companies.