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Robert Trigaux

Game of chicken thrives in Florida insurance



Statefarm1998spt Wake up and good morning. We're just four days from the Super Bowl in Tampa but the bigger match-up, the greater game is unfolding as State Farm against Florida (and its homeowners and businesses). So far, the betting line gives State Farm, like the Steelers on Sunday, the better odds of victory.

State Farm Florida yesterday said in a release that it's not gonna take it any more. Come renewal of its 1.2-million property policyholders in the state, everyone's going to be dropped at renewal time. Assuming state legislators or regulators do not step in. And even if they do, warned State Farm Florida chief Jim Thompson, his Florida-only insurance business will become insolvent -- unable to pay its claims -- come 2011.

If State Farm Florida follows through on its plans, State Farm will stay in the state as a profitable insurer of autos, a provider of life insurance and a seller of other financial services.

Here's a complete list of everything, property-wise, State Farm covers in Florida and who's going to get the non-renewal notifications. They range from boat owners, churches and apartment buildings to manufactured homes and even umbrella liability coverage.

I have some problems with this (like everybody else), which I outlined in a St. Petersburg Times column today. The bottom line: The national corporation State Farm created a Florida-only affiliate in 1998 and has successfully distanced itself as corporate parent. It's not State Farm that's threatening insolvency. It's State Farm Florida. The corporate parent lent $750 million to its Florida subsidiary after a series of storms in 2004 that the subsidiary was never able to repay, the company claims. How hard did it try? And isn't that the job of any corporate parent?

Under State Farm's Florida-only affiliate strategy, every state in the country -- hey, why not every town in every state? -- must be solvent based on local rates charged. That idea flies in the face of the entire underlying concept of pooled insurance -- using geography and large numbers of policyholders to diversify and reduce risk. Did State Farm create a separate company in southern California to insulate the parent from all the wild fire exposure?

When you concentrate your risk (State Farm Florida, are you reading this?), you increase your exposure. Duh. Floridians, you have been snookered for a long time. And the 800-plus State Farm insurance agents that will no longer be able to write State Farm coverage of property in the state? A State Farm document obtained by and noted in a story in the St. Petersburg Times indicates they are likely to lose a third of their income.

Gov. Charlie Crist, obviously in serious need of a PR handler on this topic, dismissed State Farm.  "Floridians will be better off without them." Whoa, Charlie. That's not remotely true. Yes, lots of small insurers have emerged to provide some new coverage for homeowners but they are not nearly big enough yet to absorb the volume of policyholders that State Farm will soon drop. State-run Citizens Property will balloon quickly in size (again) as it takes on the bulk of State Farm's ex-customers.

Obviously, we're just at the start of this Holy Insurance War. It will get ugly. But when it comes to insurance matters, we're used to that. Watch for the gnashing of teeth and pulling of hair in Tallahassee when it becomes clear how much bigger Florida taxpayers' exposure to hurricanes will become after State Farm bails.

(Photo: St. Petersburg Times files.)

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 11:23am]


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