Florida Home Insurers Losing Money; Will State Farm Stay?

Homeowners insurers doing business in Florida – established as well as new – are losing money and the state regulator says rates may need to go up.

Also, the state’s largest private home insurer, State Farm Florida, which wants to leave the state because the state won’t give it rate hikes it says it needs, could be staying after all, perhaps as a slimmed down model of its former self.

Insurance Commissioner Kevin McCarty told Gov. Charlie Crist and Florida Cabinet members that 84 of the 210 property/casualty insurers doing business in the state reported underwriting losses in their national results at the end of the second quarter. Also, of the state’s newest 21 insurers, 15 lost money on underwriting as of that date.

McCarty said this is not a loss situation unique to Florida but is happening nationally. He also said it is not unusual for start-up insurers to lose money at first. But he told officials that in Florida insurers have identified a number of cost factors that are driving their results. These include greater-than-expected premium reductions for mitigation discounts, rising fraud related to mitigation discounts, the cost of reinsurance, replacement costs, and an increase in the costs to investigate sinkhole-related damage.

He said that insurers have told him that these concerns are “exacerbated” by the continuing economic downturn and the decline in Florida’s real estate market.

McCarty said the state’s options are limited. “There are only two alternatives: Increasing rates, which is really just affecting the symptom, or looking back at the core problems and what can be done,” he told officials. The latter – looking at core problems – might include re-examining the mitigation credits, sinkhole coverage and replacement cost programs and beefing up anti-fraud efforts.

However, one of the main cost drivers and concerns of insurers – reinsurance – is outside the state’s control and if the state is hit with a major storm this cost pressure will only get worse, he added.

McCarty said he is still negotiating with State Farm over its proposed withdrawal. The insurer wants to drop some 770,000 policies but the state and the insurer have not yet agreed upon a plan. Until they do, State Farm is blocked from dropping its customers.

McCarty raised the possibility of a scaled down State Farm remaining. “We would be better served if State Farm stayed to some degree,” McCarty said. He suggested that the insurer’s recent move to discontinue certain policyholder discounts is a step towards the insurer reducing its exposure in the state that could help its bottom line.