What is State Farm's Agenda?
Does anybody really know the motivation behind State Farm's announcement that it plans to leave Florida? The executives in State Farm's Bloomington, Illinois, headquarters do, but I doubt many outside of that office understand what State Farm hopes to gain from their announcement.
This lack of transparency regarding State Farm's motivations is the reason Florida should immediately conduct a full investigation of State Farm's actions. If State Farm’s announcement is honest, it should have no fear of this investigation.
The purported reason is that State Farm cannot make money at the current premium rates. As indicated in my prior posts, (State Farm's Freakanomics, State Farm's Power Play And Propaganda Ploy, The Devil Is In The Details), an administrative judge found differently. He even called the transactions between State Farm Florida and State Farm Mutual, a sham. One must question whether the public reason is a sham as well.
State Farm’s motivation may include:
- State Farm truly is losing money.
- State Farm wants to bully the Office of Insurance Regulation into allowing higher rates.
- State Farm wants to use Florida as an example to bully other states into rate decisions and policy decisions favorable to State Farm.
- State Farm wants to force favorable federal government corporate charter legislation.
- State Farm and others in the old guard property insurance oligopoly want to shock the government into implementing a federal catastrophe reinsurance program whereby the old guard oligopoly will not lose business to new start up companies that will compete for their auto business.
- State Farm wants to leave the coastal property insurance markets because the new models of enterprise risk management suggest more profitable enterprises.
Whatever the reason, Floridians deserve a better explanation. Florida government officials should obtain all the internal emails and memos State Farm executives reviewed, analyzed and produced when making this decision. One must assume that State Farm, being as well run as it is, put significant analysis and thought into this decision.
we got dropped by allstate on Long Island NY a few months back... something about the 2005 hurricane season when we didn't have a hurricane in NY that year, or any year going back to 1985 when Gloria knocked down a few trees and some beach houses. My house, built in the 1920's survived the 1938 hurricane. We never once filed a claim and were thrown out after years of rate increases. They got their money, the good (for nothing) hands of allstate.
Has anyone obtained allstate's internal documents to determine why they dumped NY? Please advise...
Whacked,
Allstate has been trying to reduce its exposure to coastal areas for some time. It has been trying to talk the Federal Government into insuring these coastal areas through a Catastrophe insurance plan.
Your comment is worthy of me replying in greater detail with a full Blog post, and I will in the near future.
Thanks.
Allstate's special purpose entity (Willow Re) that held the Cat Bonds for its Northeastern Hurricane exposure defaulted. According to published reports that we detailed on slabbed the value of the collateral inside the Willow Re Bond Trust trades around 50% of national value.
In other words if a Hurricane creamed New Jersey tomorrow, Allstate's available reinsurance from it's 1997-2010 program is half what they originally planned ($125MM instead of $250MM).
We are finding State Farm has experienced similar problems with its 1997 Cat Bond issue through its SPE Merna Re though we have not been able to determine the extent of the impairment.
There has to be a link between the implosion of the subprime market of which both Allstate and State Farm participated via their reinsurance programs and the astronomical rate increases both tried to stick Floridians with last year. Allstate's program through Willow Re was only $250 million while State Farm's was a reported $4 billion which might also explain why Allstate backed down while State Farm is backing out as quickly as possible.
It also may explain why Commissioner McCarty has little patience for the pass the buck game State Farm is playing in Florida.
sop
Sop,
An interesting comment. You are doing fantastic work at Slabbed.
A person of great respect suggested to me that a possible agenda of State Farm's withdrawal was a decrease in its massive surplus caused by the financial crisis. I kind of dismissed it because State Farm's surplus is so huge it would be very difficult for me to imagine how big of a financial meltdown would have to occur for State Farm to be concerned about leaving Florida because of it. Yet, State Farm Mutual is suggesting Florida poses too big a risk.
For me, I follow the macro economic news to provide possible indications as to what may be happening where "the rubber meets the road" reagarding insurance claims decisions and claims activities. Many companies create corporate goals in tough financial times that incorporate the claims department doing its best to help. This pits the insurance company against the customer policyholder as claims practices become sharper and authority to pay becomes more difficult to obtain. This is what we are seeing from some insurance companies regarding the payment and handling of Hurricane Ike insurance claims.
I will make this into a Blog post later because your comment deserves greater reflection.