State Farms nearly 680,000 homeowners insurance policyholders in Florida could see their premiums increase an average of almost 28 percent, if the insurance companys rate request is approved by state regulators.
Representatives from State Farm presented their case Tuesday for the rate increase to officials from the state Office of Insurance Regulation, who will make the final decision in the next two weeks. The rate request also includes a 95.7 percent rate increase for its commercial multiperil residential policies, which comprise about 5 percent of State Farms policies in Florida.
If approved, the new rates would take effect April 1 for new policies and July 1 for renewals.
State Farm says the rate increase is largely driven by the jump in sinkhole claims in recent years. A study conducted by the OIR showed that sinkhole claims more than tripled between 2006 and 2009, and that costs nearly doubled, rising from $209 million in 2006 to $406 million in 2009. State Farm has paid out $351 million in sinkhole claims in the last three years.
The company has lost a substantial amount of surplus with no hurricane debts, said Adam Swope, actuarial pricing manager for State Farm.
But consumer advocates stipulated that while State Farm has been hurt by the surge in sinkhole claims, the company could adjust its administrative policies in Florida and its surplus-to-premium ratio to come to a much lower rate increase.
The cost for selling and maintaining State Farm policies in Florida is expected to be nearly double that of its policies in the rest of the country, due to higher premiums resulting from greater risk, of which an increased amount goes to insurance agents commissions.
Steve Alexander, an OIR consumer advocate and actuary, contends that because State Farm agents sell relatively few new policies, and their work consists mainly of the maintenance of existing policies, their compensation should reflect that of their colleagues in the rest of the country, since the same service is being provided.
There shouldnt be that much difference between countrywide and in Florida. Most of the business were talking about here is renewal business, Alexander said.
As part of the rate increase request, State Farm is also looking to withdraw its sinkhole coverage as part of its homeowners insurance policies, but will allow customers to buy sinkhole coverage as a separate add-on to their existing policy. Alexander was skeptical of such a request when the main reason given for the rate increase was the jump in sinkhole claims.
We have a very significant concern over the company withdrawing sinkhole coverage and then offering it again, Alexander said.
Some OIR representatives also pushed State Farm for a transition plan for customers who wish to go to another company. Under current state statute, their customers would be able to go to Citizens Property Insurance, the state-run homeowners insurance company, if their new policy would cost more than 15 percent of what they would be offered at Citizens.
You can reasonably anticipate that they would call their agent, said Belinda Miller, general counsel for OIR, adding that a plan for transitioning customers to other private companies needs to be in place.
Reach Gray Rohrer at grohrer@sunshinestatenews.com or at (850) 727-0859.
