Insurance Claim

The Office of Insurance Regulation of the State of Florida released a statement about State Farm Insurance Company’s intent to leave the State of Florida. Commissioner Kevin McCarthy issued a consent order that ends the pending litigation between State Farm and the Insurance Commissioner’s office concerning State Farm’s plan to leave Florida’ property insurance market. State Farm will now continue writing business in Florida’s residential insurance market, and Citizens Property Insurance dodges a bullet that could have been fatal.

The Florida legislature established Citizens Property Insurance, the high risk pool, in 2002, in response to insurance companies that either went bankrupt, cancelled or pulled out of Florida because of repeated hurricanes. So, Citizens Property Insurance places the Florida taxpayers at risk for residential losses. Since 2002, storm after storm have struck Florida, nearly bankrupting Citizens. And Citizens is only one big storm away from ruin. So, when State Farm, the largest residential property insurer in Florida announced that they were leaving the state, the Insurance Commissioner’s office panicked.

This allowed State Farm to figuratively bend the Commissioner over the couch and have its way with him. Prior to State Farm’s announcement that they were leaving Florida, the company requested a rate increase of over 65% which was denied by the Commissioner. But rather than wave goodbye to Florida’s largest insurer, the Commissioner has granted the smaller...yet generous...rate increase of 14.8%. And, it is allowing State Farm to get rid of 125,000 policies that are arguably the highest risk policies they have on the books.

So, not only does State Farm get a rate increase on all policies, but it gets to keep its most profitable business and shove the riskier business off onto the taxpayers of the State of Florida. And for Citizens, 125,000 risky policies is better than 860,000.

You’ve got to admire that kind of moxy. State Farm, being the largest insurer in Florida, took full advantage of their market position and finally showed the State of Florida who is the boss. The regulators and the Florida legislature had little choice and no options but to give in to State Farm’s demands. The press release issued by the Commissioner’s office was a pitiful attempt to save face and spin the story to look like the Commish’s office was protecting Florida’s property owners.

Don’t you wonder if the terms of the consent order was what State Farm wanted all along?

This week, State Farm Insurance Company, the largest private property insurer in the state, announced that they are pulling out of Florida after sustaining huge losses and being denied rate increases.

I am no fan of the games and scams of the insurance industry. Even though insurance makes our modern lives and way of life possible, it is fraught with problems. Insurance companies regularly mistreat their own customers. They delay, deny and minimize claims as standard operating procedure. But they also pay a lot of claims, too, and deserve to make a profit.

Into this environment come the insurance regulators of the 50 states. They try to protect the consumer. Their regulations swing from too much to too little, just like a pendulum. But, right now in Florida, the insurance regulators’ pendulum has swung to over-regulation. The regulators and state legislators have bungled the insurance marketplace in Florida, and consumers are going to get burned.

The Florida Department of Insurance has not produced evidence that the insurance market has failed, which might explain stiff price regulation in lieu of simply allowing competition in the marketplace to regulate premiums.

During the last 15-year period, Florida insurers have been unprofitable as a group. Dozens of insurers have stopped operating in the state. Simply denying rate increases does not benefit consumers. As insurers stop writing policies in Florida, reducing competition makes consumers worse off, with higher premiums and limited choices.

In response to insurance company exits since Hurricane Andrew, Florida legislators created Citizens Property Insurance Corporation (CPIC), an unprofitable state-run insurer that sells its policies below cost. This ridiculous pricing, paired with insurer exits, makes CPIC the insurer of over half of Florida's homeowners. Because CPIC is losing money, and owned by the state, these losses will eventually require taxpayers and consumers to bail out yet another insolvent corporation.

With State Farm’s departure from Florida, CPIC may end up insuring 80% of the homes in the state. CPIC is nearly insolvent right now. All it will take is one more major catastrophic hurricane to finish it off. However, it will be the Florida consumers and taxpayers that will be finished off when they are forced by the state legislature to bail out the state-run insurer.

The over-regulation of insurance companies was also recently shown in New Jersey. Just like in Florida, New Jersey lawmakers and regulators had over-regulated the car insurance marketplace to the point that insurance companies left the state in droves. New Jersey drivers found it nearly impossible to buy car insurance at any price. In 2003, the lawmakers and regulators regained their sanity and enacted reforms that brought back competitive pricing to car insurance. Rates are dropping and citizens can once again find affordable car insurance in New Jersey.

State regulators sometimes do more harm than good. Sometimes they get it right.