McCarty Claims State Farm Trying to Work Out Deal and Expects Property Insurance Rates to Go Up

I would pay to be a fly on the wall during the discussions the Florida Office of Insurance Regulation is having with State Farm regarding its withdrawal from the Florida property insurance market. As I noted in State Farm Must Love the Clash, many of us suspect that State Farm’s bullying and threatening tactics demonstrate that it does not want to leave Florida, but uses such tactics to get what it wants from Florida’s politicians and regulators.

An article in today’s Insurance Journal, Florida Insurance Chief: Homeowners Rates Might Rise; State Farm Might Stay, suggests that State Farm is trying to reach an agreement with the Office of Insurance Regulation so that it will stay in Florida.

McCarty said the state is still negotiating with big insurer State Farm over its proposed withdrawal from the property market. The insurer wants to drop some 770,000 policies but the state and the insurer have not yet agreed upon a plan to do this. Until they do, State Farm is blocked from dropping its customers.

McCarty raised the possibility of State Farm remaining in the state but with a scaled down company.

“We would be better served if State Farm stayed to some degree,” McCarty said. He suggested that the insurer’s recent move, which the insurance department approved, to discontinue certain policyholder discounts is a step towards the insurer reducing its exposure in the state that could help its bottom line.

However, if State Farm does finally exit, he said the marketplace appears poised to absorb most of the policies it leaves behind. About 30 insurers — with what McCarty said “appears to be enough capital” — have expressed interest in taking on some of State Farm’s business. Most of these carriers are established players with “superior ability to negotiate reinsurance contracts” and not the newer entries into the market, he stressed.

I agree that Florida is better served if State Farm remains in Florida. It would be fantastic if a deal could be reached. I do not agree that State Farm should get special political treatment. I do not agree that it should be able to charge whatever it wants. I do not agree that we should not investigate how it can claim that it is losing money in Florida when there have been no hurricanes.
Why does State Farm get such special political treatment? Many would suggest that one very powerful and persuasive politician, Florida State Senator J.D. Alexander, is a major reason. Senator Alexander does a tremendous job representing his biggest corporate client, State Farm, whose regional office is in Senator Alexander’s district. The News Service of Florida ran a story yesterday, ALEXANDER: TRUE MEASURE OF FLA FINANCES INCLUDES STORM SCENARIO demonstrating in part how Senator Alexander continually helps State Farm:

Senate budget chief J.D. Alexander cast a deeper shade of red ink over Florida’s recession-battered finances Tuesday, with a stark assessment of what major hurricanes could do to the state treasury.

Alexander got the Legislative Budget Commission to embrace his demand that potential multi-billion dollar shortfalls in both the Florida Hurricane Catastrophe Fund and state-backed Citizens Property Insurance, Corp., be included in a long-range financial outlook adopted by the panel.

The financial outlook, which is required by law, shows the state faces at least a $1 billion shortfall next year to cover a stripped-down base budget, with the deficit potentially climbing to $2.6 billion when modest increases and traditionally funded state programs are included.

But the four-paragraphs added to the 117-page outlook by Alexander caused the biggest stir. The addition may also prove a swipe at Gov. Charlie Crist, who vetoed legislation in June that Alexander and other supporters said would have reduced the risk of hurricanes on the state treasury.
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State Farm’s planned exit has been challenged by state regulators, with an administrative hearing scheduled to begin next month. State Farm and some lawmakers have clamored to have the legislation retooled and added to a likely special session this fall – or at least be ready for next spring’s session.

“State Farm’s headquarters is in my district and I support that legislation,” Alexander said. “There’s lots of folks I represent as well as others that would like to have that as an option. If you don’t, you can certainly go somewhere else, even Citizens. But I think we proposed good policy for the state.”

Actually, State Farm’s headquarters are in Bloomington, Illinois. Nobody would suggest that State Farm Florida makes public policy without significant input from Bloomington.

Senator Alexander’s strong position as the Budget Chairperson cannot be overstated. Other Senators need his help to get matters through his committee. He is part of the Republican Leadership in the Florida Senate. When you happen to have a powerful and strategic politician in your favor, the way State Farm does with Senator Alexander, it is a significant political position. It is amazing that Florida, the fourth largest state in the Union, can have its public policy regarding insurance dictated to it by a company from the small city of Bloomington, Illinois. I suppose in Senator Alexander’s view and many of other politicians in Florida, what is good for the pockets of State Farm is good for Florida.