State Farm will pull out of Florida property insurance market

[stjr]

As the world turns....(from Florida T-U)

State Farm: state withdrawal conditions illegal
Says state trying to keep it from leaving homeowners insurance market

TALLAHASSEE — Conditions set by regulators for State Farm Florida's withdrawal from the state's property insurance market are illegal and amount to a rejection of the request, the company said in a filing with the state late Friday.

State Farm's petition seeks to overturn many of the strings attached to Insurance Commissioner Kevin McCarty's order authorizing the withdrawal, including requirements that the company must work with the state to make sure its customers end up in the private market and must allow its agents to sell policies from other property insurers.

State Farm says McCarty's order would illegally force the company to remain in the state by creating unpalatable requirements it would have to meet before leaving.

"The Conditions proposed by [McCarty's office] would preclude the orderly and effective execution of the withdrawal plan, significantly enhance the risk to State Farm Florida’s policyholders and the public and are tantamount to prohibiting withdrawal," the company's filing said.

McCarty's Office of Insurance Regulation has 15 days to consider the petition. Spokesman Ed Domansky said the office has no immediate comment on the filing.

"We will carefully review this petition," Domansky said.

State Farm Florida, the state's largest private property insurer, filed its request with his office in late January, two weeks after McCarty rejected a proposed rate increase that would have averaged 47.1 percent statewide.

The decision does not affect auto, life or health insurance lines offered by State Farm Mutual of Illinois, the property insurer's parent company.

State Farm plans to cancel more than 1.2 million policies, including more than 700,000 homeowners policies, almost 80,000 condominium owners policies and almost 62,000 renters policies. Almost 58,000 boat owners would also be affected.

The company must give customers at least 180 days' notice before it ends their policies.

[gatorback]

AllState tried this to.  Some years back AllState wanted to pull out and the insurance commissioner said, "Fine, if you want out, get all the way out--including your Sears." So, they didn't. 

[Midway ®]

State Farm has been my insurance my entire life.  My initial reaction was anger at them.  My anger is shifting to the state.  Seems to me the state should allow State Farm to raise rates and allow homeowners to decide whether or not to stay with the company... either way I am quite pissed off.

What exactly then would be the role of the State Insurance Commission?

If they then approve that rate increase for State Farm, why should they not also approve a similar rate increase for all other P&C carriers in the state as well?

Then, with ALL insurers raising their rates in unison, what exactly would your choice be ?

Simplistic solutions to complex problems usually don't turn out well.

[gatorback]

Your choice of course would be Citizens Property Insurance Corp.

[Midway ®]

No, citizens Insurance Co would not be needed because word would have gotten out that the State Insurance Comission will approve any rate increase from any company and there would be plenty of insurers in the state because they could charge anything they wanted to. the perfect deregulated solution al la Regan. You see how well that worked out for the mortgage business.

Only one thing....nobody would be able to afford the premiums.....oh well, that's the price of the free enterprise system....only the strong survive.....the law of the jungle....

[gatorback]

Look at if from the insurance company's perspective.  What's the real cost of insuring a home in Florida?  Based on our latest forecast, the probability of a major hurricane making landfall along the U.S. coastline is 74 percent compared with the last-century average of 52 percent.  What does that tell you?  Probably going to get worse.  So, if I was in the biz, my rate would be 50% of the replacement cost of your home. Annually.  LOL.

[gatorback]

The hurricane forecast team predicts tropical cyclone activity in 2007 will be 185 percent of the average season. By comparison, 2005 witnessed tropical cyclone activity that was about 275 percent of the average season.

The hurricane forecast team reiterated its probabilities for a major hurricane making landfall on U.S. soil:

    * A 74 percent chance that at least one major hurricane will make landfall on the U.S. coastline in 2007 (the long-term average probability is 52 percent).
    * A 50 percent chance that a major hurricane will make landfall on the U.S. East Coast, including the Florida Peninsula (the long-term average is 31 percent)
    * A 49 percent chance that a major hurricane will make landfall on the Gulf Coast from the Florida Panhandle west to Brownsville (the long-term average is 30 percent).


http://www.sciencedaily.com/releases/2007/04/070403172305.htm

[Midway ®]

The flaw in your reasoning is as follows; when a hurricane makes landfall in Florida, it does not destroy ALL homes in the state. The principle of insurance is to spread risk over as large a body of policyholders as possible. So, even if there is a 100% probability of a major storm making landfall every year, that still does not equate to a 100% premium because that storm will not affect 100% of the policyholders homes.

[gatorback]

My reasoning? Ha.  It's the insurance carriers reasoning.  You can do the math, crunch the numbers, eat more fruits and vegetables, but the underlying problem is this.  Andrew wiped out like what, a 20 years of premiums for the florida insurance companies.  They are not in the business to not make money and neither are their stake holders. The true cost of insurance is florida is that much now midway.  It's only going to get worse and they know it. Insurance companies are running to the exit door faster then Rush Limbaugh can get to an all you can eat seafood buffet.

[gatorback]

In just a few hours, the insurance industry lost every penny of premiums it collected in Florida during the previous 22 years, plus another $6 billion. Between 1970 and 1992, the insurance industry had taken in about $10.8 billion in insurance premiums in Florida. Andrew caused an estimated total of $26.5 billion in damages. Just over $16 billion of that was insured.

http://news.goldseek.com/DailyReckoning/1074624992.php

[stjr]

The insurance commissioner's job should be to make sure that carriers sell coverage honestly and following best industry practices (e.g. maintaining adequate reserves, clear and adequate policy language and coverage, good sales practices, etc.).  As to pricing itself, this should be mostly governed by competition in the marketplace.

Only if there are very few (e.g. less than 5 or so) carriers aggressively competing, should the commissioner be concerned about anti-competitive pricing.  Unfortunately, the State has created a self fulfilling prophecy by running off most carriers and eliminating competition by over-regulating pricing.  This needs to change as the taxpayers and the future of the State  are on the line with Citizens and its artificially low and politically determined pricing.

[Midway ®]

Insurance companies don't make their profit from the money that they collect as premiums. They make it from the income created by the wise and prudent investment of those premiums.  Ha ha ha.....