Does It Stay or Does It Go? State Farm's Assault on Florida
Most of the time, I battle large corporate insurers in David vs. Goliath like battles. I find it amusing that State Farm's attorneys are struggling in this fight, given State Farm’s enormous size and power. Today, State Farm's lawyers, lead by the very able Mark Delegal, are lobbying Florida's leaders on a very anti-consumer bill. This bill would allow State Farm to charge whatever rate it wants. Florida Governor Charlie Crist is reportedly prepared to veto such legislation.
At the same time, State Farm’s lawyers are fighting with the Florida Office of Insurance Regulation over the terms of its withdrawal from Florida's property insurance market. Is State Farm using the threat of leaving to compel legislators to pass the very anti-consumer legislation? Will State Farm withdraw its plan to leave if the bill is passed?
To remind everyone, State Farm lost in an administrative hearing against the Florida Office of Insurance Regulation in which it asked approval to increase its rates . The judge made a number of findings that State Farm was not losing money in Florida and it noted State Farm's absurd argument that it claimed to be losing money in Florida through "expenses" that the company paid to itself.
In response to the order, State Farm decided to stop providing property insurance in Florida altogether. My thoughts on this are found in a post, State Farm's Power Play And Propaganda Ploy. In hockey terms, State Farm's power play lead to an unexpected short handed goal by its opponent, Florida's Insurance Commissioner, Kevin McCarty, who placed conditions on the withdrawal and did it in a very pointed manner:
"State Farm’s cited reasons in the Withdrawal Plan are both disingenuous and misleading to the Office and policyholders they seek to abandon. State Farm created its current “crisis” by failing to pursue the opportunities that were available to reduce its expenses and mitigate its decrease in premium volume. Instead, it chose to attempt to raise rates in order to reduce savings to its policyholders its mitigation discounts provided [sic.] and to seek a profit that was excessive and unreasonable in the current economic conditions while certifying that its rate filing reflected all premium savings that resulted from legislative enactments. State Farm’s actions raise serious questions regarding the fitness and trustworthiness of its officers and directors to engage in the business of insurance."
State Farm has now challenged McCarty’s findings and conditions in a Petition for an Administrative Hearing on the matter. Their Petition claims that Florida acted "arbitrarily and capriciously.” I guess State Farm can now relate to its customers in Mississippi that it mistreated during the Katrina litigation.
In the meantime, lawyer Mark Delegal, a State Farm lobbyist, is heading a group of insurance industry lobbyists who are trying to overturn the longstanding practice of Florida regulating insurance rates. There is a good reason why insurance rates are regulated by the states--federal anti-trust laws do not apply to insurance company rate making. (I wonder if Florida legislators supporting this measure have a clue about that and its implications for the types of rates consumers may have to pay.) An article by Julie Patel in the Sun-Sentinal, Florida Home Insurance Legislation Mainly Favors the Insurers, noted that insurance industry lobbyists are pressing the Florida legislators with numerous pro-insurer bills which will result in increased rates and lower consumer protections. Delegal, State Farm, and other insurance industry insiders seem to be winning this battle---they have an army of attorneys and use their own customers' premiums to fund their fights for laws that would actually harm their customers.
Thank God the Florida people have elected a person of courage to stand up to large corporate interests and these lobbyists. The Sarasota Herald reported that Florida Governor Charlie Crist will stop these anti-consumer measures in its article, Crist Warming up the Veto Penfor Insurance Bill. Crist, a former Attorney General, is well aware that the insurance industry is exempt from criminal and civil penalties of federal anti-trust laws, specifically in return for those companies agreeing to be subject to state regulation. He was quoted:
“My hope is that some provisions that in my view are detrimental will fall away before they come to me,” he said. “I’m a free market guy first and foremost so long as the free market can protect the consumer.
“If it can’t because an industry is so powerful and so unwieldy, then there’s an appropriate role for government to assist the consumer. This one concerns me because it’s ‘Katie bar the door’ for their rates and that’s not good.”
Crist compared insurance rates to the prices at gas stations; as soon as one station raises its prices, the other inevitably follows.
“In that industry,” Crist said of property insurance, “there seems to be a swarm mentality.”
It will be interesting to see how State Farm’s lawyers try to get it out of this mess. The lawyers are very clever, bright and persuasive types. In my battles, I never underestimate them. But it sure looks like they have some tough going to get State Farm out of its fight with the State of Florida.
First of all a disclosure, in my forensic accounting practice, I have been engaged by both State Farm and policyholders/public adjusters/plaintiff attorneys, to analyze business income and stock loss claims.
Ok..........let's look at the facts on the ground. I have been working with the insurance industry since 1990. Over the years, the number of "legitimate" property carriers in Florida has decreased from a strong group of national insurers to being able to write all of them down on a small post-it notepad.
Now, as it seems, State Farm will be leaving Florida due to a disagreement on the "facts". Both "sides" have their arguments and I'm sure both sides are mixing some truth and some fiction in their respective positions. However, the bottom line is this, Florida is losing one of its last "legitimate" insurers, and what will remain are a group of new, untested insurers that, although I do not own a crystal ball, will likely end up in receivership after the first major or maybe "semi-major" disaster that WILL be coming our way.
Just let the free market work and if State Farm does not provide VALUE to the policyholder..guess what... the potential policyholder will look elsewhere for it coverage.....p.s Good Luck.
Dear Mr. Smith:
Could you kindly explain (for a little ole' layperson) what the "...disagreement of the facts" are that is causing State Farm to leave and/or threaten to leave Florida (if you can) ? You say "...both sides are mixing some truth and some fiction in their respective positions..." - sounds like you're talking about attorneys (though we can't always blame just the attys. when there is so much blame to go around! :)
One thing that is a FACT though, is that most people (think "Joe the Plumber") cannot afford to be without insurance - believe it or not, there are those of us who are not in the top 5% of the populated wealth - those that cannot "whip their checkbook out and write a check to a General Contractor" to start repairs while awaiting payment of an ins. claim - they're the LOSERS - and we're always the LOSERS. It's quite obvious who the winners are - and that's not fiction.
Respectfully,
SHIRLEY HEFLIN
Shirley,
I agree with you that most people cannot be without insurance and cannot whip out their checkbook..... However, in my humble opinion the answer is not to further damage the insurance market by telling insurance companies to "hit the road jack." We need more insurance companies NOT less.
If you think government/Citizens/FIGA is the answer to the State's insurance needs, I would bet you haven't been one of their policyholders trying to collect on a claim. Or if you think these new "cheap" premium insurers, which Gov. Crist believes will fill the shoes of State Farm are the answer, I guess you haven't been insured by the likes of Poe Insurance Company (my most recent insurer before they went bye-bye.) If an insurance company is not there to pay claims or refuses to pay when they should, what good are your premium "savings"???
****MORE INSURANCE COMPANIES=COMPETITION=LOWER RATES*****
Bruce,
Hi.! Glad you wrote back - I agree w/you (and my Homeowner's is w/State Farm). And, you're right, I've NEVER been insured (if you want to call it that) by FIGA.
But I was Chip Merlin's first Legal Secretary when he left insurance defense work in 1985, and until 2005. I helped process many FIGA, Citizens, etc., claims on behalf of policyholders. I am well aware of their non-caring, lazy attitude(s).
I agree w/you. In my "non-lawyer" opinion, State Farm and other large insurance companies spend a lot of money - unforunately, it's most often not on their insured's claims. The money is spent for their vendors defending a claim (i.e., engineers, attys., etc.) and trying to find ways to not pay claims which, in the end, they usually end up paying - CONFIDENTIALLY of course.
At least that was my perception when I worked at Chip's firm.
Take care,
SHIRLEY
Bruce,
We need more good insurance companies. We do not need those that fail the public trust--no matter what the cost.
What do you mean a "free market?" Do you mean similar to the financial "free market" that made the credit default swaps? I want no part of a "free market" like that.
Historically, there is antitrust exemption contained in the 1945 McCarran Ferguson Act, which placed responsibility for insurance regulation with the States. Thus, insurers are permitted to engage in certain joint data collection, price trending, and form and policy development activities. That law makes possible rating organizations such as the Insurance Services Office, the National Council on Compensation Insurance and the American Association of Insurance Services where information can be shared among competitors.
Do you want a free market where competitors can price fix and engage in monopolistic practices? I assume not, but that was the "free market" in the late 19th Century.
I know you went to the same economics classes I went to. Where anti-trust laws do not apply, the consumer, in the long run, does not get the best price in a free market because the market can collude to price fix.
Since the insurance industry bargained for the state regulation of rates in return for exemptions of the anti-trust regulations, it is absurd to know say that this is a "free market" initiative or a bad deal for the insurance industry. They bargained for it.
This proposed law is all about State Farm getting to have its cake and eat it too.
Calm down, Chip. :)
SHIRLEY
Chip,
My comment on free market was meant to connote the government letting a business decide what it chooses to charge for its goods or services, not government manadating what they belive is the value of those goods and services and subsequently instructing what the company can charge. Is there a possiblity of abuse by the company (price fixing...)? Yes, as you suggested, there is a potential for that to happen.
Now let's now get to the facts on the ground....and the $$ affect on the Florida policyholders. When I started my forensic accounting business in 1992, there were numerous large property and casualty insurers in Florida. Now there are few and soon to be fewer. Chip, please explain why have so many large insurers left the State of Florida? I'd like to hear your opinion and then I'll reply with mine.
Best regards,
BDS
Chip,
Don't mean to "hog the blog" but after writing the previous comment, I was thinking.....if the proposed law you mentioned above was enacted, what do you believe would happen to the insurance market in Florida? Would State Farm stay? Would other carriers enter or reenter the Florida market, or would there be an exodus of the remaining carriers here? Would Citizen's book of business increase or decrease? Would the average cost of insurance go up or down in Florida?
As always, I respect and am interested in your opinion.
BDS