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On Business | Robert Trigaux

State Farm's exit from Florida: Oh, the drama

Insurance behemoth State Farm Florida cried poverty on Tuesday, saying it must stop insuring homes and businesses or face insolvency because the state won't let it charge high enough rates.

"It's a very difficult day for me as president of this company to make this announcement," an almost apologetic State Farm Florida president Jim Thompson told reporters. "We've done property insurance in Florida for over 70 years."

State Farm Florida employs 4,800 in the state. And it contracts with 800 suddenly bewildered State Farm agents (who employ an additional 4,500 people) in Florida to sell company products. About 1.2 million policies are at stake here. At renewal time, State Farm will drop every one of them, a process that will unfold over the next couple of years and during three more hurricane seasons.

"We'll be out of this (property coverage) business by 2011," Thompson said. "We have no choice. We will have no resources to pay claims." And woe to all, he added, if big hurricanes whack Florida before State Farm exits.

Hey, as Corporate Theater goes, I'm ready to award the Academy Award for best actor to Thompson for his "genuine and compassionate role as a grieving insurance executive facing insurmountable odds." Bravo.

I have no doubt State Farm Florida feels financially pressed. I'm sure State Farm Florida is frustrated that state insurance regulators (and the potently populist Gov. Crist) don't give the slightest hoohaw over pleas to raise rates.

But let's step back from the stage drama for a moment.

For all the press releases and news conferences Tuesday, not a word was mentioned about Illinois-based State Farm, corporate parent and mother ship of State Farm Florida.

In a brilliant stroke, State Farm in 1998 created a subsidiary exclusive to Florida and named it State Farm Florida. In the last 11 years, a slow-to-get-it Florida's gotten used to thinking of State Farm Florida and its limited resources as the real provider of insurance services. It should be the giant parent corporation headquartered in Bloomington.

It is not the national State Farm business that whimpers imminent insolvency. Just the home and business property insuring business in Florida.

And you thought the whole concept of insurance — spreading risk over lots of people and properties to diversify risk — was still alive and well!

Let's add to the plot. Last week, a leading insurance industry information provider called ISO Property Claim Services ranked 2008's top five states according to insured property losses. They are Texas ($10.2 billion), Louisiana ($2.2 billion), Minnesota ($1.6 billion), Ohio ($1.3 billion) and Georgia ($1 billion).

Where's Florida, the perennial ground zero of property damage claims? Nowhere to be seen among the top five.

At State Farm Florida, Thompson says his in-state business spends $1.21 for every $1 it brings in. But insurance companies make money two ways: by the premiums they charge, and by investing those premiums.

I'd rather State Farm Florida stay. It will be tougher here without their sharing our property risks. But if they have to bid a fond farewell to show Florida it won't be pushed around, so be it.

Let's just be clear we've looked behind the curtain long before they go.

State Farm's exit from Florida: Oh, the drama 01/27/09 [Last modified: Wednesday, January 28, 2009 5:33pm]
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