State Farm Florida has lost hundreds of millions of dollars in the state in the last decade and risks insolvency if it continues writing property insurance here, company executives told a legislative committee this week.
Jim Thompson, president of State Farm Florida, told the House Insurance, Business & Financial Affairs Policy Committee on Tuesday that the company must stop its financial bleeding to ensure it can pay off future claims.
“This is a day that we hoped would never come for State Farm,” Thompson said. “This is the nightmare I’ve been waking up to each day since I assumed this responsibility.”
It was largely the same tale of woes the Bloomington, Ill.-based insurance giant outlined in his letter to customers last month that it planned to leave the property market in Florida, canceling business with some 1.2 million clients over the next two years.
Lawmakers were polite in their questions and virtually split on State Farm’s decision to pull out of Florida in contrast to the hardline position of Gov. Charlie Crist, who believes the state should let them go.
Deputy Insurance Commissioner Belinda Miller said it’s likely that Insurance Commissioner Kevin McCarty will approve the company’s request, but only after it meets a Feb. 9 deadline to provide detailed information on those customers about to be cut loose.
“We’re going to do everything we can to make sure this is a smooth transition,” Miller said.
State Farm corporate vice president Dave Hill said the company has paid out $1.4 billion more in claims and expenses than income it has taken in since State Farm Florida was created as a subsidiary of State Farm Mutual 1998.
State Farm plans to continue serving some 2.8 million customers who have their vehicle insurance with them.
State Farm’s repeated requests for higher premiums have been rejected by Florida regulators. Hill conceded that was “a factor that bought us to the realization that we need to act quickly.”
But he wouldn’t totally rule out that the company couldn’t change its mind at some point.
The company most recently sought a 47.1 percent rate hike, although Hill said the company needed an increase loser to 67 percent.
Miller noted that regulators approved a 52.8 percent rate increase for State Farm two years ago and that the 47.1 percent request was not justified.
“We think there is more that State Farm could do if they wanted to stay in Florida,” she said.
Miller said afterward that some 30 startup companies in Florida would be capable of absorbing the policyholders losing their State Farm agreements.
Asked if State Farm would remain in the property market if the business climate improved, Hill said, “we can’t sit here and say today if this happens we will change course.”
He said the eight hurricanes that heavily damaged Florida in 2004 and 2005 forced the company to borrow $250 million to pay claims and another $500 million to stay in business.
Meanwhile, the state’s chief financial officer, Alex Sink, sent a letter to Thompson, asking that State Farm Florida allow its contracted agents to place policyowners with any licensed property insurance company.
State Farm has rejected the proposal.
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