Consumer advocate seeks State Farm rate cut of 40 percent

TALLAHASSEE — Instead of facing a proposed 47.1 percent average increase in property insurance premiums, State Farm's nearly 1-million customers statewide should see rates cut almost 40 percent, according to Florida's insurance consumer advocate.

Bloomington, Ill.-based State Farm, which has nearly 100,000 policyholders in the Tampa Bay area, is squaring off with regulators in a hearing today. If its request is approved, the new increase, which could be as high as 91 percent in parts of Pinellas County, would take effect starting March 1, 2009.

Stephen Alexander, an actuary with the consumer advocate's office, wrote in a draft report to regulators that State Farm, Florida's largest private insurer, says it needs the rate hike because the company has paid out $1.20 in claims and expenses for every $1 collected in premiums.

"However, it is important to recognize that State Farm's prior history of hurricane losses is irrelevant," Alexander writes. "State Farm's own actuaries acknowledge this by using hurricane models rather than actual hurricane experience to predict future hurricane losses. Rates should not be set to recover prior years' losses. "

The report also notes that State Farm should not be allowed to add a 6 percent expense load to prospective rates to repay a $750-million loan it obtained from its parent, State Farm Mutual, after the 2004 hurricanes.

"It is just an attempt to recover past losses," the report reads, "and amounts to nothing more than an additional profit loading."

Alexander wants State Farm to explain why its net cost of reinsurance, or backup coverage, has increased even though global reinsurance market rates have come down. And it wants to know why the company bought more coverage from the Florida Hurricane Catastrophe Fund, why it has reduced its coastal exposure through nonrenewals and why it has stopped writing new business.

Alexander said his analysis indicates that if State Farm used the same profit and reinsurance provisions today that it used in 2004, then the company should reduce its rates by 39 percent.

State Farm spokesman Justin Glover said Alexander's report was not surprising, "since the consumer advocate's office generally opposes rate increases, even those approved by (regulators).

"This is a draft report," Glover added. "We hope the office will take advantage of the opportunity to discuss their concerns with State Farm at (today's) hearing."

If regulators deny State Farm's request, the company can withdraw the filing, refile or appeal.

Comments on this article

by Tony	Aug 17, 2008 12:48 PM
If we get hit by a hurricane citizens will be bankrupt and we will pay higher taxes to make up the loss. Give State Farm the increase. I will be happy to pay it. Good Luck seeing an adjuster from citizens after a storm.

by Jason	Aug 17, 2008 12:48 PM
State Farm needs to go through what Allstate just went through. Allstate is now paying a fine and writing new policies with a decrease in rates. The state needs to hit state farm like they hit Allstate. Cancel your State Farm Policies before they do!

by peter	Aug 15, 2008 4:24 PM
state farm should be thanked for rebuilding so many houses...if you don't like their rates - try allstate etc. no one requires anyones else to be insured by statefarm

by Andrew	Aug 12, 2008 7:48 PM
State Farm uses MODELS to set rates? Uh, they are REQUIRED to do so, and the STATE tells them which models to use. Some of you folks make a box of rocks seem intelligent.

by Lisa	Aug 12, 2008 3:39 PM
The state can surcharge for Citizens losses or losses paid for insolvents like Poe, but SF Florida can't repay it's parent to cover 04-06 storms which wiped out prior profits. If SF Mutual hadn't paid in, FIGA may have had to, i.e., more surcharges!

by Dick	Aug 12, 2008 3:00 PM
If the insurance companies are profit mongers, and it is so profitable to write home insurance in Florida, why are they all cancelling policies?

by Jagcanes	Aug 12, 2008 2:09 PM
Any company operating at a loss for several years, facing increasing costs, and over-regulation would leave the State. State Farm has stayed and only wants a balanced income sheet.

by mike	Aug 12, 2008 1:35 PM
These greedy insurance companies need to be told NO! Their claim of losses in 2004-05 were the first real losses they had. They.ve had few since & profits soar. make them hold the line. If they choose to leave the State don;t allow them to come back.

by Edward	Aug 12, 2008 1:30 PM
Let's see, if State farm drops those properties most likely to have a claim and keep those least likely to have a claim isn't that a form of rate increase. Wish I had the money to write insurance, would only keep the least likely to have claims.

by Snoz	Aug 12, 2008 1:20 PM
"Your in good hands" with State Farm. Too bad their hands are only good for digging through our pockets.

by Robert	Aug 12, 2008 1:09 PM
The commission in FL should suspend State Farm and put them out of doing business in Florida. They're a total rip-off. I recently shopped around and reduced my premium by 110 % for the same coverage by another carrier. State Farm is major corruption.

by jim	Aug 12, 2008 9:28 AM
STAND BY FOR ANOTHER RAM JOB FROM THE RICH COMMISSION MEMBERS. DON'T GIVE THEM 1 %. HOPE THEY READ THE ABOVE ARTICLE BUT PROBABLY NOT. WONDER HOW MUCH THE COMMISSION GETS FROM THE INS. LOBBYISTS???

by David	Aug 12, 2008 9:28 AM
I hope that state regulators do the right thing and deny State Farm's rate request, rather than caving to the company's massive lobbying effort. State Farm is just trying to make more profits on our backs. Just say NO.

by Dennis	Aug 12, 2008 9:28 AM
Absolutely true and worth repeating! "State Farm's own actuaries acknowledge this by using hurricane models rather than actual hurricane experience to predict future hurricane losses. Rates should not be set to recover prior years' losses. "

by Charlie's Pal	Aug 12, 2008 9:28 AM
State Farm hates you and wants you to drop your policy so they won't have to non-renew your policy, this way you leave and their happy!

by Greg	Aug 12, 2008 9:28 AM
They are crooks, we need to let citizens expand and take over. Then we will have a stable insurance market. People can't take much more gouging.

by Ron	Aug 12, 2008 9:28 AM
A previous article mentioned that State Farm was using a once in 150 years storm model while the standard for years has been 1 in 50. Why can't the legislature mandate the specific risk models that are used by these crooks?

by Chris	Aug 12, 2008 9:27 AM
45 years and no claims, right....I have a bridge to sell you to China if you think we believe that one. State Farm will pull out if they don't get the increase and you will be stuck with Citizens Insurance, just wait until you see their rates.

by Square	Aug 12, 2008 9:27 AM
Folks, treat your insurance coverage as catostrophic coverage only..for fire and hurricane...raise your deductibles and watch your rates plummet

by Art	Aug 12, 2008 9:27 AM
the states should fund a re-ins.pool . The state should sell all insurance. I want someone in charge who's way of doing business is written in law and crystal clear

by Rick	Aug 11, 2008 8:20 PM
...while they are cutting rates along the Mississippi Gulf Coast.

by bill	Aug 11, 2008 8:20 PM
Wakeup people, what are the names on the biggest buildings in all major cities? How do you think insurance companies afford to erect these megalitic monuments?

by mr bill	Aug 11, 2008 7:03 PM
I am still wondering how after 30 some years in Chicago and 15 years in Florida they find it beneficial to drop my mother who is living on social security and has never made a claim.

by Pete	Aug 11, 2008 5:21 PM
Deny the increase and tell State Farm and the rest that unless they start being fair and honest ( dirty words to FOX news and the RNC) they can no longer write any policies in Florida, home auto life etc. Run them out!

by Steve	Aug 11, 2008 4:24 PM
Same game as cars. One accident at $1500 will rasie rates by $500 for the next 5 years.

by G.B.	Aug 11, 2008 4:21 PM
I HOPE this is true. In 2007 my insurance with State Farm went up 125% (I live in Pinellas in a NO Evac Zone). Thankfully in 2008 my policy was back down to a reasonable rate. I had a rough time paying that increase for the 1 yr.