State Farm Florida began to plead its case Monday, explaining to a judge why it needs to raise property insurance rates by 47.1 percent, an increase regulators turned down.
State Farm is appealing the rejection with a hearing before an administrative law judge in Tallahassee, a process expected to last most of this week. A final decision on rates could be more than a month away.
"This is driven by declining premiums," said Cynthia Tunnicliff, a Tallahassee attorney for State Farm. "State Farm has had to dip into profits or surplus to make ends meet. We can't keep doing that."
She said State Farm's costs have increased, and it is collecting less in premiums because of big discounts given to customers who strengthen their homes against hurricanes. She said State Farm has evidence that it needs a 67 percent rate increase, but it asked for only 47 percent.
The Office of Insurance Regulation disagrees.
It saysState Farm didn't follow state law and properly pass on to their customers savings from buying the state's cheap back-stop insurance.
Officials also dispute whether State Farm can give itself a special kind of profit for assuming risk for hurricanes by buying backup insurance from its parent company.
State Farm of Bloomington, Ill., has a significant presence in the Tampa Bay area with about 100,000 policyholders, or almost one out of every six homeowners.
Because rates vary greatly depending in large part on location, the proposed rate hike would hit Pinellas the hardest in the Tampa Bay area, with increases from 55 to 91 percent. It could also mean increases of as little as 10 percent in parts of Pasco County, but up to 79.4 percent in Manatee County.
Administrative law judge D.S. Manry has about a month to issue a "recommended order" for or against State Farm's rate hike.
Insurance Commissioner Kevin McCarty will then review the law judge's decision. McCarty can either accept or reject the recommendation. However, he can throw out the judge's ruling only if he finds the facts don't support the decision. That rarely happens.
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.
Insurers used to be able to appeal rate rejections by going to an arbitration panel, a preferred way of settling rate disputes, because it was quicker and insurers often ended up with a compromise on rates. But lawmakers passed a law that got rid of arbitration earlier this year.