Competing Insurers Want State Farm's Business
State Farm has a market share in the property insurance business that its competitors envy. These competitors are taking advantage of State Farm's announcement that it intends to leave Florida’s property insurance market.
For example, People's Trust Insurance Company is running full page newspaper advertisements with a headline:
"Has Your Insurer Skipped Town?"
It then lists rates which suggest that the average savings to a State Farm policyholder that switches to People’s Choice will be a whopping 53%! The ad pokes fun at State Farm by saying:
"So, say goodbye to the other insurance companies and the outrageously high premiums that will leave with them. Now is the time to make the switch to an insurance company that is proud to serve the people of Florida."
Given that People's Choice can charge approved rates much lower than State Farm's, one has to consider this as an additional indication that State Farm’s request for a 67% rate increase was based on sham economics, as found by the Office of Insurance Regulation and the administrative law judge who reviewed the matter.
State Farm is being ridiculed by those in its own industry. While State Farm may have anticipated that its policyholders, regulators, media, and consumer advocates, like me, would be critical of its decision, the overwhelming criticism by those in its own industry suggests that the OIR’s view is correct.
In my earlier post, What Is State Farm's Agenda?, I noted that State Farm could honestly believe a 67% rate increase is necessary. Indeed, just because the Administrative Judge and OIR found differently does not absolutely disprove State Farm's position. Given the long term implications, Florida should conduct a thorough analysis of State Farm’s motives, agendas, and internal decision making process.
The last thing we need in the long term is to find State Farm had a legitimate point and that all of its competitors are charging rates that are far too low. Rates too low will eventually result in massive bankruptcies of these insurers. I doubt that is the case, but that is the implication of State Farm's actions. Florida should conduct a complete study.
Chip as usual great post. As you know State Farm gave two reasons for leaving Florida. One was the discounts given to Florida homeowners who "hardened" their homes mostly via a taxpayers subsidized program set up by the Florida Legislature and paid for by taxpayers/homeowners.
The very next day after State Farm announced its pull out of Florida I attended a legislative hearing on insurance held by the Mississippi Senate. The insurance industry had a speaker from State Farm and Nationwide at the meeting. Guess what one of their "exciting" new programs which State Farm and Nationwide discussed? You guessed it. A 25 million dollar taxpayer funded "hardening" program for Coastal homeowners in Mississippi. Nationwide noted it would roughly cut wind policy rates 35 percent. I believe Florida has a 40 percent rate reduction? I think they need to realize that people are watching what they do now and it will be harder to tell one state one thing and anouther state something else.
Also we are looking into the reinsurance market(the second reason cited by State Farm for leaving) over at Slabbed and what we are finding very disturbing. It appears insurance companies began using sub-prime mortgage products in their reinsurance programs. Traditionally they had used United State Treasury bills which were stable and liquid. Now they have a mess on their hands. This might be part of the reason they are leaving Florida.
Thanks Steve