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Insurer to drop 50,000 homes

State Farm plans to withdraw windstorm coverage on dwellings near the coastline.

By TOM ZUCCO AND JENNIFER LIBERTO
Published July 20, 2007

State Farm Florida told regulators Thursday it plans a significant retreat from coastal areas and will begin dropping the windstorm insurance on some 50,000 homeowner, condo, mobile home and renter policies within 2 miles of the coast starting Jan. 1.

In a few areas, the boundary would extend to 5 miles from the coast.

Policyholders within the boundary can elect to keep other portions of their homeowner policy, such as fire and theft, but only if they already have a State Farm auto policy.

State Farm also said it plans to write no new policies within 10 miles of the coast unless the structures meet the strengthened 2001 state building codes.

Florida's largest private insurer, State Farm has a significant presence in the Tampa Bay area, with 136,485 policyholders, or about one out of every four homeowners.

State Farm spokesman Chris Neal said the company lost policies during the first half of 2007, something that has never happened before. While State Farm wrote about 28,000 new policies during the first six months, it also lost more than 40,000 others to cancellations or nonrenewals.

With slightly more than 1-million policyholders statewide, State Farm says it's planning to focus more on inland policies, basically reconfiguring its books to shed riskier properties.

"We recognized in 1992 after Hurricane Andrew we had a major problem with our overall exposure," Neal said. "This is not an action we take lightly. But if there is any good news, we are still committed to Florida."

Neal could not say which counties would be most affected, but he added that no policyholders would be dropped during the current hurricane season. Policyholders will be notified by mail at least 125 days before their policies expire, with the first letters scheduled to go out Sept. 15.

The move is a first for State Farm but follows similar cutbacks by Allstate, Nationwide, the Hartford, Liberty Mutual and others. The pullback is expected to push more of the state's riskiest properties into the ever-growing state-backed Citizens Property Insurance Corp., shifting more of the burden to taxpayers' shoulders. If hurricanes hit and Citizens can't pay claims, all policyholders would be assessed.

Gov. Charlie Crist said State Farm's move will make Citizens "that much stronger.

"Thank God the great members of the Legislature did the work that they did last January so that we have a backup," Crist said Thursday. "In case any of these private insurers do less, now the people's Legislature is doing more."

In contrast, state Chief Financial Officer Alex Sink said she was concerned about State Farm's move.

"It's disappointing that the largest private insurer and one of the more respected companies would have such disregard for long-standing customer relationships," she said.

And Florida Insurance Commissioner Kevin McCarty, whose office must sign off on the plan, was also apprehensive.

"These actions are inconsistent with State Farm's previous statements outlining their underwriting intentions," McCarty said in a statement. "The office is in the process of reviewing these filings to ensure they are consistent with Florida law. If State Farm reduces exposure in Florida through the nonrenewal of property insurance policies, the Office of Insurance Regulation will revisit State Farm's rates to ensure they are not excessive."

Regulators approved a 52 percent rate hike for State Farm in 2006, and while the company has yet to make a final rate request for this year, Thursday's action would influence State Farm's 2008 rates.

Because the company plans to be more competitive inland and will start writing policies in some counties where it has never written before, State Farm thinks its policy count will actually increase.

"In areas greater than 10 miles from the coast," Neal said, "we will write new business as long as the roof is less than 10 years old."

But it's not just hurricanes that present a challenge to State Farm. When the Florida Legislature froze Citizens' rates until January 2009, and when it lowered the threshold for homeowners to get a Citizens policy, the insurer of last resort could post rates that in many areas are now lower than State Farm's.

"We've seen what they (lawmakers) did to Citizens," Neal said. "That was an eye-opener for us."

The result, some lawmakers say, is that Citizens is becoming the primary insurer of Florida's coastlines.

"It's unfortunate," said House Speaker Marco Rubio of Miami. "It's going to be bad for our market. Citizens is no longer just the largest (insurer), it is a collection of the worst policies in the state, and the public is on the hook."

State Farm's move has also confounded consumer advocates who point out that the company has clearly been making money from its homeowner policies in the past year and a half.

"It's a bit difficult to understand when you see they're doing so well," said Bill Newton of the Consumer Action Network in Tampa. "But now State Farm has joined the fraternity of chicken insurers."

Times staff writers Alex Leary and Stephanie Garry contributed to this report. Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.

Fast Facts:

Cutbacks in vogue

Since last year, Nationwide Florida has begun dropping 35,000 policyholders statewide, and Allstate Floridian has resumed its program of dropping about 200,000 policies. At the same time, companies such as Liberty Mutual, the Hartford, United Services Automobile Association and Auto Owners have either stopped writing new business, dropped policyholders as they come up for renewal or both.

Industry in crisis

Learn about the problems facing insurance companies in Florida at tampabay.com/insurance.

[Last modified July 20, 2007, 00:38:09]