Last week State Farm, the country's largest home and auto insurer, and Florida's second-largest home insurer (over 700,000 policies) announced that it was withdrawing from the Florida homeowners insurance market. It wanted to raise its rates by almost fifty percent and the Florida regulators refused.
State Farm's announcement coincidentally is timed with an announcement of a different sort in connection with a report on the largest home insurer in Florida: Citizens Property Insurance Corp, the state-created insurer of last resort. (Wikipedia refers to it as the insurer of only resort for some).
In 2008 the Florida Legislature created the Citizens Property Insurance Corporation Mission Review Task Force "to develop a report setting forth the statutory and operational changes needed to return [Citizens] to its former role as a state-created, non- competitive residual market mechanism." It is particularly difficult to be a "residual market mechanism" if the rest of the market has fled the state because permitted rates are too low.
The most recent draft of the report available to the public shows that there is strong criticism for Citizens' current rate-setting structure and rates. The report acknowledges that policyholders are unlikely to seek private coverage if Citizens' rates are less expensive than private insurers. And all the factors work to make Citizens' rates lower. Citizens does not need to maintain capital. Should a large number of claims come in, it will fund those claims through assessments against Florida residents and businesses. Citizens does not pay state or federal income tax. Citizens may borrow more cheaply by offering tax-advantaged interest.
A cynic might conclude that the regulators refused State Farm's request to raise rates in order to keep rates down where they might be considered competitive with Citizens. State Farm's response demonstrates that competition with Citizens is not the goal. Staying economically viable is. And in State Farm's view that cannot be accomplished in Florida under current circumstances.
And the situation in Florida is only likely to get worse. An above average hurricane season is predicted. High rates or low rates, insured or uninsured, a named storm will not pause to find out the reason; it will just raise the roof and then raze the building.