State Farm plans to leave Florida Home Insurance Industry

The state of Florida has refused to allow State Farm Mutual to raise homeowner insurance premiums by nearly 50 percent. State Farm has responded by announcing it will get out of the property insurance business in the Sunshine State. That means 1.2 million policyholders will have to find new coverage.

Floridians are about to get a real-world lesson in the realities of risk. Bloomington-based State Farm set up a Florida subsidiary in 1998. State Farm Florida borrowed $750 million from its parent to stay afloat after a devastating quartet of hurricanes in 2004. It still hasn't repaid that money. There were no major hurricanes in Florida during the first three quarters of 2008, yet the subsidiary's surplus dropped by more than $200 million in that time due to higher operating costs and state-mandated premium discounts. State Farm Florida said that, without the 47 percent increase in premiums, it would be insolvent by 2011.

Florida's political leaders decided they could afford to lose State Farm—the largest private insurer of homes in the state. "I think Floridians will be much better without them," said Gov. Charlie Crist. Many property homeowners will end up as customers of Florida's underfunded insurer of last resort, Citizens Property Insurance Corp.

The state-backed insurer sells homeowner policies below cost. How can it do that? State Farm is a private company that has to take in more money than it pays out or it will go out of business. Florida's insurer of last resort will turn to Florida's taxpayers if future hurricane losses overwhelm it. Bank on that.

As Florida's governor was blithely declaring the state will be better off without State Farm, state lawmakers began writing a bill aimed at capping how many policies a company can drop in a given year. They intend to apply it retroactively. So the message Florida has sent to private insurers is: Come to Florida. We won't let you make money. And we won't let you leave.

Pretty soon Florida is going to have just one giant money-losing insurance company insuring homeowners—and they might as well rename it Taxpayers Property Insurance Corp. because that's who's going to foot the bill. Florida has a storm rising, but it has more to do with politics than hurricanes.