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More insurance pain on way

State Farm is set to raise rates for homeowners by 71 percent, and Allstate is going to drop thousands of policies.

By HELEN HUNTLEY and KRIS HUNDLEY
Published May 13, 2006

With hurricane season bearing down on Florida, the state's two largest private insurance companies delivered bad news bombshells to thousands of policyholders Friday.

State Farm, which has 941,000 policyholders in Florida, said it wants to raise its rates 71.5 percent on average. For owners of the 30,000 manufactured homes State Farm insures, the news is even worse: The company wants to raise its rates an average of 95.3 percent. The increases will take effect Aug. 15 unless overruled by state insurance regulators.

In addition, State Farm said it is canceling all 1,500 of its condominium association policies Jan. 1 and is transferring wind coverage on 39,000 homes in coastal areas to Citizens Property Insurance Corp., the statewide insurer of last resort.

Meanwhile, Allstate Floridian, which has 650,000 policyholders, said it is dropping 174,000 of them, including about 17,000 in the Tampa Bay area.

Allstate plans to transfer 120,000 of those policyholders in November to a new insurance company headed by Locke Burt, a former state legislator from Ormond Beach. Allstate customers who end up with Royal Palm Insurance Co. will continue using Allstate agents, who will act as a sales force for Royal Palm under the agreement.

"Royal Palm brings significant capital and reinsurance to the Florida market and is looking to grow its customer base across the state," Burt said. He said the company will spread its risk by taking policies from throughout the state.

Burt ran for attorney general in 2002, losing to Charlie Crist in the Republican primary.

Allstate said it could not find another insurance company to take on the remaining 54,000 policies it is shedding, which include all its manufactured home policies, landlord package policies and residential fire policies. Those policyholders will lose their coverage in November, and most of them are expected to end up in Citizens as well.

The day's news is another sign of Florida's deepening insurance crisis, brought on by two costly hurricane seasons. Similar announcements from other companies are likely to follow. The effect will be more rate increases for Citizens, which by law has to charge the highest rates in the state.

Tom Gallagher, Florida's chief financial officer, who oversees the Office of Insurance Regulation, said recent legislative actions are a "step in the right direction," but said: "This is not a Florida only problem. It's a national problem that's got to get federal participation."

He said the state will review State Farm's request to make sure it is actuarially justified.

State Farm said most of its rate request - 58.8 percent - is just to cover the cost of reinsurance, the extra layer of insurance that insurance companies buy to reduce their own risk.

"Our reinsurance cost far more than doubled," State Farm spokesman Chris Neal said. "People are less willing to write reinsurance and charging a lot more for it. Reinsurance is critical to make sure we have the financial ability to pay claims when devastating hurricanes hit."

State insurance officials said recently that some insurance companies might have to be liquidated if they aren't able to afford adequate reinsurance.

The alternatives to reinsurance are raising more capital or reducing risk by dropping policies in high-risk areas. Many insurance companies are doing both. Fitch Ratings, which reviews insurance industry risk, predicted this week that insurance companies will need to increase capital reserves an average of 10 percent because of increased storm risk.

"Spurring all of this is the belief that we're in for a prolonged period where we will have storms that are not only more intense, but also more frequent," said Robert Hartwig, chief economist for the Insurance Information Institute.

For homeowners trying to buy insurance, there's no relief in sight.

"This is probably going to have a significant effect on our area, especially if this hurricane season is anything like the last two," said St. Petersburg Realtor Nancy Riley, president-elect of the Florida Association of Realtors. "I have seen people whose insurance policies are going up so much they have to sell because they can no longer afford to be in their homes."

Mobile home owners are particularly affected.

"My insurance through Citizens went from $880 to $2,350 a year and the house is not insured for replacement value either," said Don Hazelton of Largo, former president of the Federation of Manufactured Home Owners of Florida. "Allstate saying they're dropping mobile homes will throw people in a panic."

Many mobile home owners simply do without coverage. Michael Turzan said he called two companies trying to find insurance when he bought a 6-year-old mobile home in New Port Richey a year ago. Both said they no longer did business in Florida.

"After that I didn't even try," said Turzan, 82. "So now I don't have any insurance."

Helen Huntley can be reached at hhuntley@sptimes.com or 727 893-8230.

[Last modified May 13, 2006, 07:43:07]