Florida Insurance Commissioner Kevin McCarty on Friday approved State Farm’s exit from under a plan that would keep state-run Citizens Property Insurance from swelling.
McCarty approved the company’s plan to drop some 800,000 homeowners policies, with conditions.
“Our goal is keep as many homes as possible in the private sector at or below the rates that are being charged by State Farm,” McCarty said during a conference call.
State Farm has 21 days to agree to McCarty’s conditions or request an appeal. Under McCarty’s plan, the company must:
- Give up its Certificate of Authority within 30 days.
- “Facilitate the orderly transition of policies” to other private insurers and shall not place any policies into Citizens Property Insurance Corp.
- Issue prorated refunds “of premium to any policyholder seeking to voluntarily cancel or non-renew a policy and will not short-rate the return premium for any policy in any line, whether it be automobile, boat or property insurance coverage.”
- Consider “all offers to buy or assume all or part of its business.”
McCarty said State Farm’s plan to withdraw from the property insurance business in Florida would have been hazardous to the State Farm policyholders and Florida taxpayers.
State Farm’s plan called for dumping all of its customers into state-backed Citizens, which has nearly 1.1 million policies and is overexposed and underfunded, McCarty said.
“We’re not allowing them to warehouse these policies in Citizens,” he said. McCarty’s plan would require the insurance giant to consider all offers from private insurers. Right now, State Farm agents are prohibited from writing policies for other insurers except for Citizens. State law allows State Farm agents to offer clients “multi-line discounts” if they keep the auto insurance policy with State Farm and place the homeowners policy with Citizens.
“We are not going to allow them to hold their agents captive and not allow them to broker with other companies,” McCarty said.
Requiring State Farm to consider all offers means State Farm agents “will now be free to help Floridians find the property insurance coverage that best suits their needs,” said Florida Chief Financial Officer Alex Sink.
McCarty said he is confident that Florida’s private insurers can absorb the bulk of policies State Farm plans to drop over two years. McCarty disagreed with critics who maintain that many of Florida’s private insurers are thinly capitalized and untested.
“These are well-capitalized companies,” he said. “Many of them enjoy AM Best ratings that are better and more financially sound than State Farm.” McCarty said there are 15 private insurers ready to assume State Farm’s policies. He declined to name the companies, saying they are negotiating the transfer of State Farm policies.
Lisa Miller, a lobbyist representing Florida insurers, said some domestic insurance companies are financially stronger than State Farm. In the future, the bulk of Florida’s homeowners policies will be carried by a growing number of smaller insurers, said Miller, a former deputy and lobbyist for the state’s Office of Insurance Regulation.
“There’s two philosophies,” Miller said. “There’s the philosophy that 30 companies should have 3 percent of the market and the philosophy that four companies should have 25 percent each. I think the economic times are supporting the former.”
In a statement, State Farm said it needs time to study McCarty’s plan before making any decision.
“It is our sincere hope that we can work with the Office of Insurance Regulation to establish a way for State Farm agents to service policies directly out of State Farm Florida into OIR-approved companies,” the company said. State Farm submitted its plan to drop 1.2 million policies to regulators late last month, saying it was losing $20 million a month and would run out of money to pay claims in 2011.
