Can State Farm Florida Remain In The State After Losing Its Bid To Raise Home Insurance Rates By 47%

For years State Farm Florida Insurance Company has remained one of the few Fortune 500 homeowners insurance companies still doing business in Florida. It is still by far the largest private insurance company in the state for both homes and autos covering 1 million and 2.5 million policyholders respectively.

They deserve credit for that.

After all, many big insurance companies simply left Florida for good after Hurricane Andrew - and never looked back. That left Florida to deal with the problem on its own and caused it to create its own state run insurance company of last resort to help those who simply could not find coverage.

State Farm Florida did not pursue this path.

It has taken a reasonably prudent business approach to the situation that has unfolded in Florida since Hurricane Andrew. These steps have included:

Strict underwriting criteria for homes selected for new business

Multiline discounts for policyholders with home, auto, and life coverage

Selectively cancelling higher risk older homes closer to the coastline

This approach might have been successful during normal, reasonable periods of history. However, reasonable is not the right word to use for what has happened in Florida in recent years:

During the period from 1992 through 2004, no large insurance companies came back into the Florida home insurance market - leaving State Farm on its own.

Florida hurricane claims in 2004 and 2005 caused billions of dollars in damage. State Farm Florida paid millions in claims and had to request an emergency cash infusion from its parent company to recapitalize it.

While the company received significant rate increases following the 2004/2005 hurricanes, large rate increases given to most Florida home insurance companies in 2005 and 2006 caused a major political backlash. Quite frankly, Florida home insurance rates were simply not affordable and the public demanded rate reductions.

The pressure for lower rates was far worse due to outrageous property taxes and the collapse of the Florida real estate market.

The State of Florida reacted to voter pressure. However the final impact was not impressive.

The 2007 and 2008 legislation had a minimal effect on lowering homeowners insurance rates and shifted billions of dollars in catastrophic risk to the Florida Hurricane Catastrophe Fund - a state entity that has publicly stated that it can't meet its reinsurance obligation to insurance companies in part due to the frozen bond markets.

As a result, all companies including State Farm Florida are concerned that the Florida Cat Fund won't be there to pay them back after a major hurricane and are looking for new sources of backup reinsurance.

That, combined with other factors led the company to request a 47% rate increase a few months ago. After state regulators rejected the rate increase, the company appealed that decision in court. Recently a judge agreed with state regulators that State Farm's 47% rate increase was not justified and also rejected the rate increase.

This brings us to where we are today - a time when many Floridians have to be wondering if State Farm Florida is preparing to exit the state for good. This would not be welcome news and would cause a major shock to the Florida homeowners insurance market as policyholders scramble to find other coverage.

In today's uncertain times, you have to be ready to face realities. One of those might be that your State Farm home insurance policy in Florida will be cancelled or dropped. If that happens there are several things you need to do to respond to this:

Shop your policy. Most State Farm Florida agents can only offer you homeowners coverage with Citizens after your policy is cancelled. Find a large independent agent who represents multiple companies in order to give you the best options for replacing State Farm Florida.

There are many new insurance companies local to Florida that have come into existence in the past 15 years, many of which have only been approved since the start of 2006. Some of these companies might be a good option to replace State Farm but you have to research each and every one of them. Review their financial ratings and their experience with customer service completely.

Insurance agents for State Farm Florida will be hurt by large cancellations of homeowners insurance policies. They have spent years building a book of insurance business in Florida. When they lose your home insurance business, it usually means they lose your car and life insurance business as well. While sympathy is commendable, you need to know that your agent's interests are best served if he can convince you to keep your State Farm auto and life insurance business, while moving your home insurance coverage into Citizens. Don't tolerate being given coverage with Citizens without first considering other private homeowners insurance companies offered through other agents that can also offer you auto and life insurance.

Get all the facts if you are thinking about Citizens Property insurance. Citizens has said that it does not charge enough premium to cover the risk that it takes. It is also experiencing problems with borrowing to pay major hurricane claims in today's shaky bond markets. Major recommendations being presently considered at Citizens include raising rates, limiting coverage, and mandating certain home hardening measures. Research Citizens just like you would any other company.

While it is impossible to know how this drama with State Farm will conclude, by following these steps you'll be way ahead of thousands of other policyholders who will all be scrambling to replace their coverage at the same time.