State Farm Florida has asked for the regulatory go-ahead to leave the state. The company said it was losing millions every month soon after it was denied a 47% average statewide rate increase early this year. The company said it would be insolvent in two years.
“We didn’t want to leave the people of Florida. We tried to hang on for as long as we could but in this environment and based on our finances, we couldn’t do it any longer," State Farm spokesman Chris Neal said.
But other companies said they believe they could stand to gain from the pullout. People's Trust Insurance Co., one of about 40 new companies to have formed in Florida since 2007, said it is ready to take State Farm policies. Mike Gold, chief executive, said what State Farm has done to its policyholders is “disgusting.”
“We’re going to do just fine without them,” Gold said. “The market is more than prepared to absorb their policies. There is capital and there’s plenty of attraction to capital. If a bunch of companies pick up a couple of percentage points (of State Farm’s market share), the policies will be absorbed.”
Gold said the days following State Farm's announcement have been very busy.
“I say, ‘Good bye, State Farm,’” Gold said. “You can’t keep being your own reinsurer, taking money from the right pocket, putting it in the left pocket and then tell us the right one is empty while trying only to keep your most profitable business. You’re either in or you’re out.”
The plan is to keep as many of State Farm’s soon-to-be-former policies away from the state-run insurer, Citizens Property Insurance Corp. Citizens said it was going to work with state regulators to steer as many of the policies as possible into the voluntary market.
Gov. Charlie Crist said Florida “will be much better off without” State Farm. Insurance Commissioner Kevin McCarty said Florida has “new companies eagerly looking to grow their business and will welcome the opportunity to add more customers.”
State Farm’s choice to leave “is a business decision, not made to stake out a bargaining position,” said Robert Hartwig, chief economist and president of the Insurance Information Institute.
“This company believes it has done everything it could to remain but with its latest rate filing denied, it believes the rates it is allowed to charge are not adequate for the risk,” Hartwig said.
Hartwig said he predicts Citizens will get a “good number” of State Farm policies over the two-year withdrawal plan because of constraints on capital in the private market plus the additional reinsurance needed to write the policies.
Sam Miller, vice president of the Florida Insurance Council, said Citizens will try to get as much business to private carriers and "I hope they succeed. These companies are, to be honest, a little untested because we haven’t had a large storm in several years. But they are all important to the market, especially now.”
Ed Domansky, spokesman for the Office of Insurance Regulation, said regulators can approve State Farm’s plan with conditions if the office has reason to believe the plan will cause an “unnecessary destabilization” of the market.
“It’s pointless to tell a company to keep going when they say they are going to go insolvent, but these are our options,” Domansky said. "We're at a point right now where it's too soon to say how this will go down."
McCarty has already issued a subpoena to State Farm requesting detailed information about its property insurance policyholders in order to “fully understand all the potential risks, so that we can properly evaluate State Farm’s withdrawal plan,” he said.
Gold said he’s come up with a plan to address the Florida insurance dilemma. “It will provide a unique new product,” Gold said. “This plan will lower premiums and lower the state’s exposure by 50% over the next few years.”