Perspectives: State Farm, Florida Regulators Continue to Mull Best Way for Insurer to Leave

In Florida there's been some worry about whether the state has enough cash to pay for damages following a hurricane. It's a story that has been covered many times in the past five years.

That remains a story, but with lawmakers passing legislation to allow its last-resort insurer to climb onto a "glide path" to actuarially sounds rates, and with other provisions to draw down the exposure of the Florida Hurricane Catastrophe Fund, there is progress.

This, along with the recent predictions that the FHCF can sell more post-event bonds if it needs to, has resulted in some contentment, guarded as it may be. It may take a bigger storm to cause major problems in Florida.

Therefore the light in the Sunshine State now shines on a tug of war between the Florida Office of Insurance Regulation and State Farm Florida -? the state's largest insurer of homeowners multiperil that says it cannot be that anymore, citing a good chance it will be insolvent by the end of 2011 under current rate and risk conditions.

State Farm Florida filed a withdrawal plan at the end of January that called for its last nonrenewal at the end of 2011. It plans to continue to write automobile insurance. The OIR responded with an approval of the plan, but with conditions State Farm is not ready to meet. To protect its rights, State Farm Florida requested an administrative hearing, but it and the OIR were to hash out the differences in the meantime. No one, they said, wanted a hearing.

By all indications, no progress has been made, and now no more extensions have been asked for. About 10 months after it originally asked to leave (that's almost a year into its original three-year plan), State Farm Florida and the OIR are scheduled to appear before a state administrative judge. The hearing will begin Oct. 12-13, with more time set aside in November if needed. Both sides said they will continue to talk until the hearing.

It should come as no surprise the OIR and State Farm are at odds about the hearing date. State Farm wants something sooner. After all, there is the threat of insolvency hanging over them, and the longer they are forced to stay, the bigger threat that is, they say. The OIR says the discovery process alone warrants a date no sooner than November.

Essentially, this will be a trial complete with a pretrial exchange of evidence, depositions and witnesses. Whether Florida is better off with State Farm is a debate that won't be settled for a while. The company can't even begin to leave until the legal process is done. Then, depending on the outcome, there are options to take the case to higher courts.

The media in Florida recently ran with a pull quote from Insurance Commissioner Kevin McCarty the OIR said was taken out of context. McCarty said he had a "gut feeling" State Farm Florida would stay. He also said he didn't know what the company would actually do, but continued with the observation that it might be difficult to remain and sell auto policies without also offering property insurance.

And consider this. State Farm Florida doesn't necessarily have a good history with the Florida Division of Administrative Hearings. DOAH held up McCarty's denial of the company's request for a 47% increase and that is part of the reason the company says it has to leave.