The largest homeowners insurer in Florida is canceling the policies of 125,000 of its most vulnerable customers beginning Aug. 1, halfway through the 2010 hurricane season.My dad worked his entire career for State Farm, and my sister has done claims work for them, including spending weeks in Florida following hurricanes. In 1992 when Hurricane Andrew devastated South Florida I had heard from other sources that had the storm center hit 20 miles further north State Farm would have been put out of business.
The company, State Farm Florida, began sending out cancellation notices this week to nearly a fifth of its 714,000 customers, most of them in the state’s hurricane-prone coastal regions.
A spokesman for State Farm said the decision was the direct result of its failure to win a 47.1 percent rate increase from state regulators.
State Farm stopped writing new policies and sought the increase a year ago, saying severe losses from a series of devastating hurricanes in recent years had rendered its business model unworkable. It said that without the large increase, it would be insolvent by the end of 2011.
The losses for State Farm are especially large because it is the largest insurer in the state. But the insurance industry across the board has been slammed by heavy hurricane losses in recent years, most notably from hurricanes Ivan (which caused $8.9 billion in damage) and Frances ($8.3 billion) in 2004 and Wilma ($20.6 billion) in 2005.
Although there were no catastrophic hurricane losses in the last two years, the potential continues to drive up costs for Florida insurers, whose access to reinsurance is restricted because of the risk, the state Office of Insurance Regulation said. It projected that 102 of the 200 largest Florida carriers were running suffering net underwriting losses.
Numbers like that led State Farm, which said it was losing $20 million a month, to give notice that it would pull out of the Florida market unless it could enact a mammoth rate hike. In a settlement with regulators in December, it was granted a 14.8 percent rate increase and permission to drop its most vulnerable customers over an 18-month period as a condition for its agreement not to withdraw from Florida completely.
The church insurer I worked for had underwriting rules that banned writing policies within a certain number of miles of the coast in hurricane areas. There was just too much risk of a total loss to a whole bunch of properties all at once.
Who will be the first one to come up with a federal government-backed homeowner's plan for Florida? You just know that will be coming, especially if other companies are unwilling to take on the newly available risk.
1 comment:
Like a good neighbor...
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