State Farm wants to eliminate or trim virtually all of its discounts for homeowners insurance in Florida in what it calls an urgent effort to remain solvent as the company gradually withdraws from the state's property insurance market.
If the filing is approved, it will spell higher premiums for those now receiving discounts for mitigating their homes against storm damage, for remaining claims-free as longtime State Farm policyholders, and for having multiple policies with the insurer, among other premium savings.
"Many of our current discount or credit programs will either be adjusted, modified or, actually, many of them eliminated," State Farm spokesman Chris Neal said Friday.
State Sen. Mike Fasano, R-New Port Richey, called the filing an "outrageous" way of "going around the law" to raise premiums without a formal rate increase. "The insurance companies always seem to find a way to help themselves and neglect the homeowner," he said.
After being briefed on the filing by insurance regulators late Friday, Fasano said he was told the average State Farm policyholder may have to pay 40 percent to 44 percent more for property coverage until State Farm withdraws from the state.
But regulators said they had no estimate on the impact, and State Farm flatly denied that an average policyholder increase had even been calculated.
"There is no way whatsoever to have a number for an average affect on our customer. There's a range for individual credits and discounts, and it's not that simple," Neal said. "Some are cumulative (discounts) and some aren't. You simply can't add them together. … Even myself, I have no idea how it will affect my policy."
State Farm Florida, the largest private property insurer in the state, has said its net worth is dwindling quickly as it spends $2 on claims and expenses for every dollar in premiums brought in.
In the wake of Hurricane Andrew in 1992, State Farm's Illinois-based parent shielded itself from losses in hurricane-prone Florida by setting up a separate Florida-based entity. State Farm Florida says its net worth is about $500 million, a decline of about $300 million in the past 18 months.
The company plans to continue offering auto insurance and some other lines in Florida. But if it continued offering property insurance here for the long haul, the company maintains, it's on a path to running out of money.
Cutting discounts "would hopefully allow the company to remain solvent through the withdrawal plan," Neal said.
In eliminating and reducing discounts, State Farm is reversing a strategy that helped cement its status as the state's biggest property and auto insurer. In fact, State Farm was among the leading advocates of a change in state law that allowed discounts for those with home and auto policies.
Fasano was irked, in particular, by State Farm's request to cut back on breaks for homeowners who take steps to shore up their homes against storm damage. He challenged the authority of the Florida Office of Insurance Regulation to let State Farm get out of the legislatively mandated mitigation discounts.
But OIR spokesman Ed Domansky said the law gives companies like State Farm leeway to reduce their mitigation discounts after doing their own mitigation studies.
Neal said State Farm wants to modify the discounts it gives for home mitigation, not eliminate that type of discount.
The OIR has 90 days to review State Farm's filing, which it received Friday afternoon.
Domansky said it's not clear how Insurance Commissioner Kevin McCarty will react, but he viewed the filing as an attempt by the insurer to cut costs and keep its base rate hikes to a minimum.
"We're pleased to see State Farm did submit a filing that seeks to reduce or eliminate some of those discounts before it then files another base rate filing before the end of the year," Domansky said. "If not, we'd be right back to where we started from" with a big rate request.
Regulators' rejection of State Farm's initial request for an average 47 percent rate hike triggered the company's decision in January to stop selling property insurance in Florida.
For months, the insurance giant and state regulators have been haggling over terms of the withdrawal plan. If they can't reach consensus, the dispute will be aired before the state's Division of Administrative Hearings in October.
All told, State Farm wants to drop about 1.2 million policies over the next two years, 700,000 of them covering homeowners.
Jeff Harrington can be reached at [email protected] or (727) 893-8242.