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State Farm is Moving Out

Florida is losing its largest property insurance company.

State Farm Florida Insurance announced today it is beginning the process that will allow it to non-renew policies and halt all sales of homeowners or other property-related policies in the state.

The withdrawal will affect about 1.2 million customers with State Farm homeowners, renters, condominium unit owners, personal liability, boats, personal articles, and business property and liability policies.

It will not affect the availability of auto insurance for about 2.8 million of the insurer's Florida customers - nor the availability of life insurance, health insurance and other financial services offered by agents of State Farm Mutual and its other affiliates.

Florida law requires that the company submit a withdrawal plan for approval by the Office of Insurance Regulation within the next 90 days, and then give insureds 180 days notice of any non-renewals.

Insurance Commissioner Kevin McCarty, who has regularly sparred with State Farm over rate increase and information requests, said he was not surprised by the move and vowed to closely scrutinize any plan.

The company cited its "substantially weakened financial position," which it tied to its inability to obtain regulatory approval of property insurance rate increases.

State Farm Florida said that it is submitting a two-year plan that seeks to limit disruptions for customers, and if approved, will allow customers time to find coverage with other insurers.

Jim Thompson, president, State Farm Florida, said the insurer was left without options in the state.

"Faced with steeply declining resources to cover future claims and expenses, State Farm Florida has little choice. This is not an action we wanted to take, but one we must take given the realities of the Florida property insurance market. We regret the impact this will have on our customers, employees and agents in Florida," he said in a statement.

Thompson said that Florida's hurricane exposure poses a tremendous financial risk to any property insurer but maintained that even without a hurricane, State Farm Florida's operating costs have risen as day-to-day claims have increased both in their number and severity. During the first three quarters of 2008, a year with relatively modest catastrophe impact and no major hurricane, State Farm Florida saw its surplus reduced by $201 million.

The company said that state-mandated discounts have further contributed to the reduction in revenues.

In July, State Farm Florida filed for an overall statewide homeowners insurance rate increase of 47.1 percent. This filing was disapproved on January 12 by McCarty and the OIR.

"The state itself faces similar challenges as it deals with the fragile financial condition of government backed Citizens Property Insurance Corp.," Thompson said. "State Farm Florida is a private company and must have adequate capital to ensure financial stability. And it is our responsibility to our policyholders to provide a sound financial framework for the coverages we offer."

McCarty said the action, while disappointing, was anticipated.

"We have been hearing for months of possible plans to make such a move in Florida, including a document submitted to the Office as recently as Dec. 5 as part of their recoupment filing that showed an anticipated reduction to 655,000 homeowner policies by 2010," McCarty said.

"We will carefully review State Farm's intended plans to ensure that they are in compliance with Florida law; and we will explore all legal options as well," he said.

The commissioner also suggested that the private insurance market could pick up the business State Farm is leaving behind.

"To help ease the transition of policies, Florida already has new companies who are eagerly looking to grow their businesses and will welcome the opportunity to add more customers. I encourage everyone to work closely with their agent to choose a new company that will offer needed coverage at a price you can afford," he said.

As national carriers like State Farm have grown skittish about the Florida market, domestic insurers have been grabbing more business. The jump in domestic market share is partly attributed to the increase in the number of new, homegrown companies that have started in Florida in the past several years.

In 2007, domestic private insurers wrote 39 percent of the multi-peril homeowners market— more than out-of-state carriers (24 percent), State Farm Florida (19 percent) or Citizens (18 percent), according to the OIR. In 1992, domestics wrote only six percent.

Since 2006, about 25 new domestic companies have entered the market. These carriers have introduced about $546 million in new surplus into the property insurance market. Some of the new carriers have benefited from $248 million in state funds made available for capitalization.

If private carriers are not able to assume the State Farm business, it could mean more accounts for state-backed Citizens Property Insurance, which has been shrinking somewhat over the past year.

McCarty noted that he has been working with state Sen. Mike Fasano, R-New Port Richey, on legislation that would limit the number of non-renewals an insurance company can issue in a year.

Florida Chief Financial Officer Alex Sink echoed McCarty that the decision was disappointing and also urged affected consumers to shop around. "Fortunately, there are a number of insurance companies that are committed to helping Florida's families protect their property and assets. The Florida insurance market has become more competitive, and I encourage consumers to shop around when they begin to look for a new policy," Sink said.

One agents' group expressed concern over the effects of the move on the agents involved.

"Right now our thoughts and prayers are with the State Farm agents, who run small businesses in cities and towns all over the state; the uncertainty they face is tremendous and regrettable," said Bob Lotane, speaking for the Florida chapter of the National Association of Insurance and Financial Advisors.

The group urged State Farm to free its agents to enter "brokering agreements outside of State Farm and minimize lost business due to this move."

Lotane also took a shot at state officials. "Unfortunately this was quite predictable; the companies that largely rebuilt this state after the devastating 2004 - 2005 hurricane seasons have largely been reduced to political punching bags," he said.

State Farm Florida was established in 1998 as a stand company. After billions of dollars of losses from a series of 2004 storms, State Farm Florida borrowed $750 million from State Farm Mutual. State Farm Florida has not been able to repay the note due to its financial condition, according to the company.

Source: Insurance Journal, www.insurancejournal.com, January 27, 2009

Neighbors Insurance in the News

Click on the article below to read a recent article written by Neighbor's Insurance.

Personal Insurance - Mortons vs McDonalds (PDF)

Citizens Property Insurance piles up risks, policies

Nov. 7--As state-run Citizens Property Insurance Corp. reluctantly pads its lead as the largest property insurer in the state, its risk exposure is also piling up at record levels.

That exposure last week had ballooned to $396.5-billion on 1.3-million policies, nearly twice what it was at the end of 2005.

The insurer of last resort also has to change the way it charges customers for its policies next year, taking into account whether property owners use a home as a permanent residence.

What does all this mean for policyholders? Higher rates for most, and as much as a 90 percent assessment for some if the state is hit by a series of major storms next year.

"This is an indication of what we've been saying about how troubled this market is," Citizens spokesman Rocky Scott said Monday. "We don't have an insurance crisis in Florida; we have an insurance catastrophe."

Which Citizens policyholders take the biggest hit next year will have a lot to do with the homestead exemption. Citizens had not drawn distinctions between homestead and nonhomestead property. But the Florida Legislature changed that in May, placing a greater burden on owners of nonhomesteaded property such as vacation homes and rental property.

And not just in higher rates.

Each time there is a shortfall in any of the three Citizens accounts, an assessment process will be triggered. First to be assessed are nonhomesteaded policyholders, followed by homesteaded policyholders, policyholders in all Citizens accounts and, finally, all policyholders of any insurance company.

"If you get repeated deficits in all three accounts, you potentially expose owners of nonhomesteaded properties to a 90 percent assessment of their premiums," Scott said.

Citizens took in 72,000 policies in September and is quickly approaching 1.5-million policyholders, well ahead of the nearly 1-million policies held by second-ranked State Farm. Most of Citizens policies are in high-risk areas abandoned by private insurers, but a growing number of new policies are outside that area.

The company will take in close to $4-billion in premiums this year, but when compared to its mammoth exposure, $4-billion becomes a relatively small number.

Citizens is also charged for the first time with verifying which of its properties have the homestead exemption and which don't. The company recently sent 180,000 letters to policyholders asking if the property was exempted, and soon plans to send out about 300,000 more.

The process is slow, Scott said, because Citizens has about 750 employees, far fewer than private companies that have a similar number of policyholders.

Earlier this year, regulators granted Citizens an average statewide rate increase of 25.9 percent, which goes into effect Jan. 1.

But the company, which by law must have rates as high as the top 20 insurers in a given territory, will ask for another, as yet unspecified, rate increase sometime before March based on standards that were also changed by the Legislature last spring.

Source: St. Petersburg Times (FL) (KRT)

Auto insurance rates stable for many

Jolted by high gas prices this year, car owners are at least getting some insurance relief.  Auto policies arAmericans.e basically flat or falling for many

This year, the cost of auto insurance on average will rise only 0.5% — the smallest increase in six years, according to an estimate of the Insurance Information Institute out Monday.

It predicts a 0.5% decline for auto rates next year, the first drop since 1999.

The projections are based on recent auto claims and other information, as well as the national report of auto insurance rates released last week by the National Association of Insurance Commissioners. In 2004, the latest data available, the average annual cost of auto insurance was $838 per vehicle.

Individual premiums vary widely. Bryant Jaggers of Aurora, Colo., saw a "pretty significant" drop in his rates this year. State Farm Insurance cut his premium for four cars by about $500.

A chief reason for tumbling rates is a decline in auto accidents, in part due to safer cars and roads. "We've had many technological innovations … helping vehicles avoid an accident and helping reduce or eliminate injuries of the occupants," says Robert Hartwig, chief economist of the institute.

The decline in accident rates is also attributed to some states barring or restricting late-night driving by teenagers. Although such programs have been in place for a while, they're finally starting to have an impact on insurance rates, Hartwig says. Other factors affecting rates:

• New Jersey, for years one of the most expensive states for auto insurance, is allowing more firms to do business in the state. That's brought more price competition. "We had just a tight stranglehold of regulation," says Steven Goldman, commissioner of the New Jersey Department of Banking and Insurance.

• In September, California implemented a law that prohibits insurers from determining auto rates based on people's ZIP codes rather than on how safely they drive. Insurers have since filed for rate cuts totaling $1 billion, according to the California Department of Insurance.

• In New York, rates are dropping because of a state crackdown on auto fraud and abuse. In July, for example, the state indicted 17 people and three corporations on charges of operating an auto insurance fraud ring.

Some say the drop in auto rates is not steep enough.

They note that the property and casualty industry had a profit of $15.1 billion in the first half of the year, according to the Risk and Insurance Management Society. "Rates should be down quite a bit more," says Robert Hunter, director of insurance at the Consumer Federation of America.

Source: USA Today, Christine Dugas

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CFO SINK TAKES LEGAL ACTION AGAINST PEOPLE’S TRUST AGENCY FOR ALLOWING UNLICENSED AGENTS TO SELL INSURANCE

Progressive Web Site Earns Award

September 29, 2006 - Mayfield Village, Ohio - The Drive Group of Progressive Insurance Cos.'s Web site (www.driveinsurance.com) received a "Standard of Excellence" WebAward in the insurance category from the Web Marketing Association (WMA).

The WMA judged more than 2,300 Web sites from 35 countries that were entered into the 2006 competition. Each site was assigned three or more judges from a panel of independent Internet experts and evaluated on seven criteria including: design, innovation, content, technology, interactivity, copywriting and ease of use.

The judges scored Drive's Web site above the industry average in "interactivity," "design," "content" and "copywriting." One judge said the site "...creates a positive interactive environment for the target audience; navigation is easy to use and fairly consistent."

The Web site enables independent agents to promote their agencies on the Internet through the Web site's "Find an Agent" and "Get a Quote" functions. The site is also designed to help consumers find an agent, get a fast, free auto insurance quote and--if they like the quote--send it to the agent in the form of a referral. Customers can also take advantage of secured access to their Drive policy to view coverage's, make routine policy changes, view and print ID cards and other documents, view claims information and more.

"Drive is a cornerstone of profitable growth for independent agencies, and getting the Standard of Excellence WebAward reinforces that we're meeting one of our key objectives--to provide innovative technology that makes it easy for independent agents to do business with their customers and with us," says Bill Everett, Drive's online experience manager.

Source: The Drive Group of Progressive Insurance Cos.