State: State Farm premiums skyrocket

Some Florida homeowners insured by State Farm will see their insurance premiums rise as much as 85 percent over the next two years under a ruling Monday by a state arbitration panel.

In a 2-1 vote, with the group's consumer representative objecting, the panel approved State Farm's request to impose an average rate increase of 22.5 percent this year and next. The only restriction imposed by the panel was that State Farm could not raise the rates of any single homeowners policy more than 42.5 percent a year over the next two years.

State Farm, Florida's largest insurer, had previously won approval in January to raise rates by an average 14 percent.

Bill Newton, executive director of the Florida Consumer Action Network, said a second large increase in less than a year could be devastating.

"It needs to be smoothed out so consumers don't have this rate shock," he said.

With 980,000 homeowners policies in Florida, or roughly 32 percent of the market, State Farm has had a pivotal effect on the industry statewide. When its rates were lower, it helped prevent other insurers from raising rates. Now the opposite is happening, with other homeowners insurers seeking large rate increases.

The arbitration decision came as a blow to Florida Insurance Commissioner Tom Gallagher. The commissioner approved State Farm's January rate increase but opposed the subsequent request in June as excessive, setting up the showdown before the arbitration panel.

Gallagher spokeswoman Tami Torres said the department had not received the ruling from the American Arbitration Association as of late Monday. "We would want the opportunity to review it before deciding if we're going to challenge it or not," she said.

Although the panel is viewed as a final arbiter, Gallagher's predecessor, Bill Nelson, set a precedent by challenging an unfavorable decision in court on technical grounds. Nelson won that case, but it dealt with the state-run windstorm pool, not a private insurer.

Many of the affected State Farm homeowners are already paying the price of the new rates.

Under the way that State Farm filed its request, it was allowed to start levying the increased premiums despite the state's objections.

With the panel capping annual increases at 42.5 percent a year, however, some homeowners who were charged larger increases will be due refunds.

State Farm spokesman Tom Hagerty said those homeowners will either receive a check or a credit on their premiums for any amount they were charged over the 42.5 percent maximum annual increase plus 6 percent interest.

Because of the cap, the rate increase statewide this year will probably average closer to 19 percent than the 22.5 percent the insurer is being allowed to levy, Hagerty said.

State Farm said it has been suffering from a combination of rising costs of building materials, rising claims from sinkholes and mold damage and dwindling investment income to help the company's bottom line. As a result, the insurer said its Florida operation incurred an underwriting loss of $231-million last year.

But Newton, with the consumers coalition, said the losses are due to mismanagement on the insurer's part. Critics have contended that State Farm kept rates low to build market share in the 1980s and 1990s and is now making up for years of undercharging. Hit hard with losses in investments as well, it is difficult for State Farm and other insurers to offset rising costs.

Newton called the decision new evidence that the arbitration panel is weighted in favor of the insurance industry.

The panel consists of one member chosen by the insurance industry, a consumer representative chosen by the insurance commissioner, and a third member that the two sides select from a list supplied by the American Arbitration Association. That third member, the traditional swing vote, is Tallahassee lawyer John Aurell.

Newton said Aurell was chosen from a list filled with pro-industry people, but Torres defended Aurell. "I understand he has been fair and consistent in the past," she said.

Even with the ruling, Hagerty said, State Farm is not backing off its decision last summer to stop writing any new homeowners insurance policies throughout Florida.

That decision was spurred not only by Gallagher's rejection of the rate increase, Hagerty said, but also rising costs, particularly from mold claims.

State Farm and other insurers are pushing Florida regulators to give them a break from paying big mold claims.

"Our mold exclusion issue is still unresolved," Hagerty said.

-- Jeff Harrington can be reached at harrington@sptimes.com or (813) 226-3407.

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