A Tallahassee judge has rejected State Farm's bid for a 47 percent hike in property insurance rates, raising the specter that Florida's biggest private insurer could drop a significant number of policies statewide.
State Farm's original request was turned down by Florida Insurance Commissioner Kevin McCarty. In an appeal, the insurer said it could have justified a 67 percent increase because costs have spiked.
State Farm said it is collecting less in premiums because of big discounts given to customers who strengthen their homes against hurricanes.
Administrative Law Judge Daniel Manry rejected those arguments, writing that State Farm Florida did not prove that its rate filing "is not excessive, inadequate, or unfairly discriminatory.''
State Farm officials have repeatedly warned of potentially dire consequences if they were turned down — that they may have to shed a large number of policies or even pull out of Florida.
With about 1-million property insurance policies in Florida, State Farm of Bloomington, Ill., is by far the state's biggest private insurer, second only to state-run insurer of last resort Citizens Property Insurance.
Citizens' policy count has fluctuated dramatically: It swelled to 1.4-million in 2007 as private insurers fled because of the risk of hurricanes and their inability to persuade regulators to back double-digit rate hikes. But over the past year, small private insurers and start-up companies have selectively taken several hundred thousand policies out of Citizens.
The flood to Citizens left State Farm as the sole major private insurer, bigger than the next eight carriers combined. It has about 100,000 policyholders in the Tampa Bay area, almost one out of every six homeowners.
State Farm spokesman Chris Neal would not address whether State Farm would drop policies. But in a statement, Neal said the facts presented to Manry "should have led to a different recommendation.''
"We need to be able to pay our customers' claims, particularly those due to catastrophic events such as hurricanes. Our rate request is justified and necessary to stabilize State Farm Florida's rapidly deteriorating financial condition and to serve those customer needs,'' Neal said.
"We acknowledge that this rate increase poses a difficult situation for our customers, especially in light of these tough economic times; however, it is the only responsible choice.''
In rejecting State Farm initially, the state Office of Insurance Regulation said the company didn't follow state law and properly pass on to their customers savings from buying the state's cheap back-stop insurance.
McCarty's office has 30 days to issue a final order endorsing the judge's recommendations. Ed Domansky, a spokesman for McCarty, said there would be no further comment because the insurance commissioner acts as the final hearing officer.
Although McCarty is expected to echo Manry's recommendation, State Farm Florida urged him to take into account its "rapidly deteriorating financial condition.'' Earlier, State Farm Florida told employees it lost $200-million the first nine months of the year despite the lack of a major storm and continues to lose $20-million to $25-million a month.
After McCarty acts, State Farm could appeal to the 1st District Court of Appeal, but that route can be expensive and hasn't been common.
Earlier this year, administrative law judges ruled against Florida Farm Bureau and Hartford Insurance, which were some of the first companies to appeal the state's rejection of their rate hikes after lawmakers made it tougher for insurers to raise rates in 2007. Neither of those two companies subsequently filed an appeal.
Jeff Harrington can be reached at email@example.com or (727) 893-8242.