Florida Regulators Question State Farm’s 57% Rate Hike for Landlords

Florida regulators are expressing concern over a State Farm Florida proposed statewide average 57.3 percent rate hike in insurance rates for landlords that will result in higher premiums while the insurer continues not to write new business.

At a public hearing in Tallahassee, State Farm Florida officials defended the rate increase on rental dwelling rates that could result in a $600 increase for landlords who are currently paying $1,000 in premiums.

“We have concerns how the rate change will affect our policyholders,” said State Farm Florida Actuary Sara Frankowiak. “But it is important we get the rates where they need to be but we are not there yet.”

The 57.3 percent rate hike is part of State Farm Florida’s overall plans to raise its rates by 14.9 percent. That number includes a 27.3 percent increase for condominium owners, a 48 percent rate hike for renters, and a 14.2 percent increase for homeowners. Those increases will be considered in future filings.

In documents filed with the state, the Winter Haven, Fla.-based insurer said its financial position has deteriorated over the last several years. Its surplus has dropped from $822 million at the end of 2007 to $368 million in 2011.

Additionally, following the 2004 hurricane season, the insurer’s parent company, State Farm Mutual, had to loan the company $750 million, which State Farm Florida has yet to pay back.

State Farm Florida, however, still insures nearly a half million policyholders, making it the second largest insurer in the state behind Citizens Property Insurance Corp.

However, the insurer dropped 125,000 policyholders in 2010 and another 10,000 in January and regulators said they fear that the proposed increase will likely lead to a further reduction in policies.

“If you want to get out of Miami-Dade, Broward, and Monroe counties, you are doing the right thing,” said Office of Insurance General Counsel Belinda Miller. Miller said that the four properties that State Farm insures in the Florida Keys would see their premiums jump nearly $10,000 under the proposal.

One part of the rate filing that drew regulator’s attention is State Farm’s proposed 16 percent profit and contingency factor.

Frankowiak said that the actual figure would be reduced to 13.7 percent due to its reinsurance expenses, partly due to the fact that the insurer retains $175 million in exposure.

She also said that the insurer’s direct underwriting profit would drop to 8.5 percent since it has to pay 7 percent interest in interest on a $750 million loan. The insurer projects it will owe its Bloomington, Ill.-based parent State Farm Mutual more than $100 million in interest and premium payments this year.

Florida Consumer Advocate General Counsel Brian Deffenbaugh, however, expressed concern over the size of the profit and contingency factor, especially given that the insurer is still shedding policies and will not use the monies to write new business.

“We are concerned that State Farm has given no indication that if they are given this rate increase they will write new business,” said Deffenbaugh.

Regulators also questioned the 10.8 commission that the insurer compensates agents.

Frankowiak said the increase is justified given the complexity of the market in the state and the amount of work agents have to do. She also said that agents are making less money since the insurer has dropped policies.

“As premiums sink, agents’ commissions are sinking as well,” she said.

Reginald Garcia, who owns several rental properties and was representing the Florida Justice Association, chided regulators for not holding public rate hearings around the state given the magnitude of the potential impact on policyholders.

“These are major public policy decisions that could affect a half-million people and there are nine people in the room,” said Garcia. “Where is the Tampa hearing? Where is the one in Central Florida?”

Miller defended the choice of Tallahassee to hold public hearings, saying that the office has held hearings around the state in the past, but they were not well attended.

Further she said, the public may offer views on the filings through email, phone calls and sending letters. But more than that she said, the issues at stake in the filing were well known to regulators.

“We already know these issues and the issues we know about have been litigated before,” said Miller.