As Florida's insurance consumer advocate, I am disappointed in State Farm Florida's decision to exit the property insurance market. Instead of dwelling on the reasons for State Farm Florida's decision, we need to consider the immediate fallout.Does the private market have the capacity to absorb State Farm's policies? How will State Farm agents deal with their customers? Who will guide consumers through this process?
First, we must look at the current state of Florida's insurance market. Large national insurers have been reducing the amount of property insurance they write in Florida since Hurricane Andrew in 1992. Yet, there are 135 insurers that are currently writing residential property insurance in Florida.
The Office of Insurance Regulation has stated that these companies have the capacity to take over State Farm's policies. Several insurance companies are already aiming new ads at State Farm policyholders, and I have also spoken with insurance company representatives who say their companies have plans to pick up between 25,000 to 100,000 State Farm policies.
However, there is an issue that requires immediate attention. As Chief Financial Officer Alex Sink expressed in her letter to State Farm Florida, the negative ramifications of State Farm's decision to leave the property insurance market are compounded by the fact that State Farm's insurance agents are "captive" agents. Under their current contracts, agents can only sell State Farm insurance, and the only exception is that when State Farm non-renews property insurance, the agents can write coverage in Citizens.
Given no alternative under their contract with State Farm, State Farm agents will have every incentive to place their customers with Citizens Property Insurance Corp. Yet, state-backed Citizens, which was created by the Legislature in 2002 as an insurer of last resort, has already ballooned to risky proportions: it's the state's largest insurer with 1.1 million policies and $412-billion in exposure. If a significant number of State Farm Florida's 933,140 residential property policies made their way into Citizens, it would increase insurance subsidies and would ultimately create a much larger risk than the state can afford to take on.
This is why I support CFO Sink's call to allow State Farm agents in Florida the ability to sell property insurance for other insurers. If these agents cannot write insurance for other companies, it is important for State Farm Florida consumers to keep some things in mind.
First, be aware that at this point in time there is no immediate action necessary for State Farm policyholders. The withdrawal plan has been submitted to the Office of Insurance Regulation for approval, and if approved, the company will provide all policyholders with 180 days advance notice of their nonrenewal date.
There are many consumers who are angered about State Farm's decision and have contacted my office with plans to cancel all of their insurance policies. However, all consumers should think very carefully before making these decisions, because for some types of insurance, there may be a cancellation penalty.
There aren't any penalties for canceling homeowners policies, and consumers should receive a pro rata refund for the remainder of the policy period after the date of cancellation. However, when consumers cancel an auto insurance policy, the insurer can keep up to 10 percent of the unearned premium, and there are substantial penalties for early cancellation of certain annuities and life insurance policies, too. Consumers also need to consider whether they will be able to replace these policies through another insurer.
For consumers who would like to start shopping, there are a number of suggestions about doing so wisely.
When considering a new policy, homeowners need to take extra care to make sure that they are purchasing comparable coverage and adequate coverage limits to properly repair or rebuild their homes and to replace their possessions after a loss. Cheaper does not always mean better! To assist new homeowners in making decisions about their coverage options, we recommend that they visit the Department of Financial Services Web site to obtain a copy of the consumer guide, "Insuring your Home and the Consumer's Quick Check Guide for Homeowners Policy."
There are many resources to assist you in securing other insurance. You can learn more about homeowners insurance and compare companies by size and number of complaints at http://www.myfloridacfo.com/Consumers/.
You can also contact insurance agents in your area.
Finally, you may wish to contact the Florida Marketing Assistance Plan. This plan sends information about your home and your insurance needs to agents in your area who may be able to help you find coverage. They can be reached by calling 1-800-524-9023, or online at www.fmap.org.
You can compare the average premium charged for a $150,000 home built before 2001 or a $300,000 home built after 2005 by visiting www.shopandcomparerates.com, operated by the Office of Insurance Regulation. This Web site displays sample premiums for a variety of insurance companies; however, not all of these companies may be writing new policies in your area.
Homeowners insurance policies are complex legal contracts. If a homeowner has any questions or concerns, they should contact the Department of Financial Services, Division of Consumer Services at 877-MY FL CFO (877-693-5236) or visit the Web site at http://myfloridacfo.com.
Sean Shaw
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