The Florida Office of Insurance Regulation will be holding a public hearing on February 15th. Why? To discuss the latest rate filing from State Farm, which company is requesting an average increase of 27.7 percent statewide in homeowners insurance rates. The reason, they say, is to offset the rising costs of sinkhole claims. The request is coming just as the Florida legislature is attempting to negotiate how to address the cost of sinkholes, as it prepares for its new legislative season beginning on March 8th.
Chris Neal, a spokesperson for State Farm said that the increase in the insurance company’s non-catastrophe losses, which have increased by 94 percent over the last three years, is one of the key factors that led to the rate request. He said that the vast majority of that increase is because of sinkhole losses. In 2007, for example, the carrier paid out $47 million in sinkhole claims while they paid out more than $119 million in similar claims in just the first three quarters of 2010.
Neal said, “The way things are going we may have to consider sinkholes a catastrophic loss.”
This rate filing is merely the most recent move in a dance that the State of Florida has been doing with State Farm for several years, after a deal was reached to keep the insurer in the state. Two years ago, State Farm threatened to leave Florida entirely, after its request for a 47% increase was rejected. At that time, rather than letting 800,000 policyholders get “dumped,” the state regulators agreed to a deal allowing the insurer to drop 125,000 customers, reduce or eliminate certain discounts, and increase rates by 14.8 percent.
That agreement, said Neal, helped State Farm stabilize its finances. “It gave us some rate relief and allowed us a way to manage our expenses that was critical at the time,” he said.