State Farm left the government's flood insurance program, leaving behind 800,000 existing policies, equal to almost 15 percent of the $3.3-billion flood insurance market. State Farm competitors want to be able to take over the policies, but the insurer has a deal with the government that shields them. Congress will have to decide what to do.
The struggle over the policies pits State Farm against Fidelity National, Allstate, The Hartford, Travelers and other insurance giants in a struggle that mainly about getting access to policyholders.
It also highlights the distractions lawmakers face when trying to reform troubled government programs mired in commercial conflicts, with companies vying for competitive advantage through lobbying rather than on an open market.
As lawmakers and lobbyists maneuvered, flood waters were rolling down the Mississippi valley and hurricane season was set to start on June 1, with the National Flood Insurance Program (NFIP) deep in debt and no consensus on fixing it.
Reform legislation is in the works. It has been approved by a U.S. House of Representatives subcommittee, but it faces obstacles, such as the fight over the policies.
The job of cutting through such complications will fall to Representative Judy Biggert -- the reform bill's chief backer and the chairman of the House insurance subcommittee that approved it -- as well as other House Republicans.
Biggert is staying neutral for now on the State Farm issue. "Her primary interest remains ... a reauthorization bill that will put the NFIP back on a secure financial footing and protect taxpayers," said Biggert's spokesman.
Flood insurance is not a highly profitable segment of the insurance business, but people who buy it may be willing to bundle in their home, auto and other more lucrative insurance lines. Hence, the struggle over the 800,000 policies.