State Farm Insurance Co. has decided to discontinue writing new flood insurance policies with the National Flood Insurance Program but the company says it will still service existing policies and State Farm agents will continue to help their customers with flood coverage through the NFIP’s direct distribution channel.
State Farm spokesman Phil Supple told Insurance Journal that the recent disruptions in the federally backed flood insurance plan, including the current moratorium on writing new policies, contributed to the company’s decision to pull out but those disruptions are not the only reasons.
The company wants to concentrate on its core business, on the products it provides and on meeting the needs of its policyholders. State Farm currently has a little more than 800,000 flood policies in place, Supple said, and the amount of paperwork involved when disruptions occur in the NFIP is overwhelming for the carrier.
Supple said even if Congress were to reauthorize the flood program for an extended period of time, which groups like the Professional Insurance Agents of America (PIA) and the Independent Insurance Agents and Brokers of America (IIABA) support, State Farm would most likely not re-enter the market. The flood program distracts and pull resources away from other needs of the company, he said.
“Say we have a catastrophe with hail … $200 million in an afternoon in Tulsa, Oklahoma. And you’ve got 50,000 cars, so we’ve got a lot of adjusters there. And then let’s say there’s a flood on the Mississippi somewhere. Then we’ve got to take people off of that and send them somewhere else. That’s another piece of the puzzle, but not the only one,” Supple said.
“Moving these policies to NFIP Direct will let us concentrate on our customers needs, on our products,” he added.
“The news that State Farm announced it was pulling out of its Write Your Own (WYO) participation in the National Flood Insurance Program (NFIP) does not come as a total surprise,” said Rita Hollada, past chairman and currently PIA National’s representative to the Flood Insurance Producers National Committee (FIPNC).
“The NFIP has become the victim of an increasingly political atmosphere in recent months and years. The repeated lapses in the program and its manipulation by Congress affect the certainty of the NFIP as a viable insurance program whose sole purpose is to protect and fund recovery for flood damage,” Hollada said in a statement released by PIA.
She said PIA is encouraged by a bill proposed by Rep. Maxine Waters (D-Calif.), which “makes positive reforms and reauthorizes the NFIP for a full five years. That bill passed the House Financial Services Committee on April 27.”
Still, one concern with the bill that PIA considers to be “major” is that it would postpone for five years “the requirement to purchase flood insurance for those properties newly identified as located in high risk flood zones. This leaves the lending community exposed to catastrophic loss. Instead, the NFIP has suggested a graduated phasing in to full actuarial premiums,” Hollada said.
Hollada suggested that “State Farm’s response may assist in getting Congress to recognize its obligations to support its WYO partners by keeping the National Flood Insurance Program accessible and adequately funded to achieve its stated purpose.”
October 1 Deadline
State Farm plans to change its participation in the NFIP beginning Oct. 1, 2010. The company won’t write new flood insurance policies but it will still service those policies issued or renewed under the current arrangement. Until April 2012, State Farm Fire will continue to handle claims occurring before the policy transferred, according to information provided by the company.
State Farm said the transition would be “virtually seamless” for its customers. The company expects all of its agents to enroll in the NFIP Direct distribution program for writing new policies. New policy applications and flood claims will be handed by the Federal Emergency Management Agency and government-designated claims adjusters once the transition takes place.
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