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State Farm Rate Increases Questioned

State Farm property policyholders in higher risk areas could see premium increases of 40 percent or more on their homes under a 27.9 percent average rate hike request that insurance officials said Tuesday will shock many customers and place an increased burden on the state-run pool.

State Farm Florida Insurance, the state’s largest private insurer of property, told state regulators Tuesday that non-hurricane losses — especially sinkhole claims– over the past few years are forcing the company to double rates for rental customers and seek hefty hikes from homeowners in some inland counties to cover the losses.

But the state’s insurance Consumer Advocate, Steven Alexander, said the request is bloated. State Farm is paying its agents far more than the national average for policies and is skimping when it comes to providing discounts to property insurance customers when it drops sinkhole coverage as part of its basic multi-peril package and offers it instead as an optional add-on, he said.

Speaking during a public hearing on its latest rate increase request, State Farm representatives said sinkhole losses over the past couple of years have escalated dramatically and have been the major driver in ramping up losses for the company, which has not seen a hurricane hit land in Florida since Hurricane Wilma in 2005.

“Our financial position has deteriorated over the past few years,” said State Farm actuary Adam Swope. “This company has lost a substantial amount of surplus despite having no hurricanes.”

State Farm is requesting a 27.9 statewide increase in residential homeowners’ rates. Premiums for rental insurance, a relatively small percentage of the company’s portfolio, would increase 95.7 percent if the rates are approved. Officials at the Office of Insurance Regulation say they will likely have a ruling within the next two weeks.

As part of the statewide average, policyholders in some counties would see increases that are significantly higher.

Policyholders in Orange and Seminole counties for example, would see premiums jump more than 46 percent if the request is approved. Customers in other locations would see rates fall, with policyholders in Manatee County paying 6.7 percent less and Panhandle customers seeing 20 percent reductions.

Sarasota County policyholders would see a 2.5 percent increase, while rates in Charlotte County would rise 16.5 percent.

One likely offshoot of the rate hikes is that more policyholders will be transferred into Citizens Property Insurance Corp. the state-run pool that is now the largest single property insurer in Florida. State regulators Tuesday appeared skeptical when company staffers were unable to determine how many policyholders would leave State Farm if the rates were approved. They asked why the rates were not being phased in to cushion the blow.

“Has the company told its agents what to tell customers if these rates are approved?” asked OIR Acting General Counsel Belinda Miller. “Some of them are going to be shocked.”

Alexander, the consumer advocate, said State Farm could lower costs by not paying its agents so much for renewing policies. The company’s selling expenses are more than double the national average of $149 per policy. Alexander also estimated that the company is saving about $325 per policy by not offering comprehensive sinkhole coverage, yet it is offering discounts to customers of only about $150.

Company officials said they have not broken out the sinkhole component among a list of non-hurricane damages from which it has suffered losses, a lack of information that Alexander and other panel members said they would like to see before making up their minds on whether to approve the request.

“We shouldn’t pass on this rate until we get the sinkhole figures,” Alexander urged. “It’s such a big part of the filing.”

By Michael Peltier
The News Service Florida