The Florida Office of Insurance Regulation heard testimony at a public hearing this week regarding State Farm Florida’s proposed rate increase. The insurance company is asking that the OIR approve an average 28 percent increase for its homeowner policyholders in order to cover the rising costs of non-catastrophic claims.
Officials from State Farm told regulators the company had lost a considerable portion of its surplus over the past few years. In the last three years, the surplus has declined by $500 million. Not surprisingly, the insurer cited sinkhole claims as the major reason for the surplus drain — losses for the insurer have exceeded $325 million over the past five years. Most of the claims have been made in the last two years. Statewide, sinkhole claims since 2005 are close to $2 billion.
The insurer announced previously that it will sever sinkhole coverage from standard homeowner policies. The coverage will be offered as a stand-alone product, at a premium rate.
A representative of the Florida Office of the Insurance Consumer Advocate expressed a concern over the move, disagreeing with the company on the amount the homeowner policy will be discounted when it doesn’t include the sinkhole coverage. The insurer stated it planned an average discount of $150; the consumer advocate believed it should be at least double that amount. The advocate also pointed out that State Farm pays commissions to its agents that are higher than the national average. This commission structure is likely adding unnecessarily to the company’s cost of doing business in Florida.
A representative from the OIR expressed her concern that homeowners could see increases as high as 40 or 50 percent if the rate passes. A hike like that could send homeowners to state-run Citizens Property Insurance, which is funded by assessments on property insurance policies. Citizens is already covering more policyholders than it was intended to cover — it’s the largest insurer in the state at 1.2 million policyholders. State Farm, the second largest insurer, has less than half that number.
The public comment deadline for the rate hike proposal is Tuesday. OIR will likely render a decision two or three weeks after that.
Miami Herald, State Farm seeks rate hikes in property insurance,” 02/15/11
Miami Herald, State Farm defends proposed homeowners’ insurance rate increase,” 02/16/11Share