Florida homeowners who hold insurance policies sold by State Farm’s subsidiary in the Sunshine state need to brace themselves for an increase which averages 6.9%. This is State Farm Florida’s fifth rate increase in as many years.
The State of Florida’s Office of Insurance Regulation approved State Farm Florida Insurance Company’s request for a rate increase, the fifth such uptick in five years. However, state regulators cut the insurer’s initial request to raise premiums by an average of nearly 15%, which State Farm justified by citing increased costs caused by hurricane and underwriting losses.
The insurer, which is based in Winter Haven, FL, complained at a public hearing that its surplus had slipped down from $877 million to $366 million in the four years between 2007 and 2011. Additionally, State Farm Florida reported that it had been forced to borrow $750 million from its parent company State Farm Mutual to cover claims and other expenses after the 2004 hurricane season. This loan is still outstanding, executives said.
Florida’s insurance regulators objected to various elements of State Farm Florida’s proposed increase, including a cushy 16% profit and contingency factor. They also were not convinced by the commission fees paid by State Farm Florida to its sales agents, who were making 10.8% commissions on existing policies but not writing new policies in the state.
State Farm Florida has not written any new policies over the past few years. In 2010 the insurer cut 125,000 homeowner policies from its rolls and lowered its risk in the state by dropping an additional 10,000 policies in early 2012.
Nevertheless, State Farm Florida managed to get its fifth rate increase over the past five years; including a 27.9% upward bump in 2009, an additional four percent rise in 2010, then two more price hikes (6.6 and 18.8% respectively) in the 2011-12 time period.
Because Florida’s geographic location makes the peninsular state vulnerable to tropical systems throughout the six month-long hurricane season, many insurance companies consider the area too high-risk.
Though State Farm Florida received less than what it asked for from state regulators, it will not appeal the Office of Insurance Regulation’s decision, which comes as the Atlantic hurricane season reaches its activity peak.