Florida Says No to State Farm Rate Request

Florida Insurance Commissioner Kevin McCarty announced Monday that the Office of Insurance Regulation (Office) has issued a Notice of Intent to disapprove the July 16 rate filing submitted by State Farm Florida (State Farm).

In its rate filing of more than 2,000 pages, State Farm requested an overall average increase of 47.1 percent for homeowners insurance policies. State Farm policyholders in certain parts of Florida could have seen increases of as much as 63 percent, or $8,300 more than their current rates, in Dade County; 70 percent, or $4,800 more per year, in Pinellas County. The smallest requested change was an increase of 19 percent, or an additional $1,376 per year, in Pasco County. These examples are for homes valued at $300,000, built before 2001 and without any mitigation devices. Other rate examples by county are available on the Office Web site.

"The Office thoroughly reviewed State Farm’s filing and the testimony the company gave at the Aug. 12 public hearing," said Deputy Commissioner Belinda Miller. "State Farm did not provide appropriate support for the rate increase it requested."

Among the key reasons cited by the Office in the Notice of Intent were: 1) The Company failed to demonstrate that the net reinsurance costs included in the filing did not result in excessive costs in violation of the rating law, Section 627.062, F.S.; and 2) The Office also questioned the profit and contingency factor and the additional retained hurricane risk load used in the filing. The retained hurricane risk load was previously allowed by law, but that provision was repealed in Senate Bill 2860, which became effective July 1 – before this filing was made. Eighteen other reasons were cited by the Office.

State Farm now has 21 days, if it chooses, to petition the Office for an administrative hearing. In the meantime, the company cannot implement the proposed rate increases, because Senate Bill 2860 also prohibits companies from implementing rate increases through the "use and file" process, through Dec. 31, 2009. Therefore, State Farm's filing was made on a "file and use" basis.

The company’s 9 percent rate reduction that became effective in accordance with the Oct. 1, 2007 agreement remains in effect. With its March 2007 filing, State Farm initially planned to reduce its rates by 7 percent but agreed to reduce them by an additional 2 percent. State Farm received a 52.8 percent overall average increase in late 2006.

The decision to deny the rate increase followed the public hearing in which a panel of representatives from the Office questioned various aspects of the rate filing. Video of the hearing will be available soon on the Office’s Web site.

The Commissioner has the authority to hold a public hearing to question a company about its filing pursuant to Florida law. Florida law requires the Office to hold a public hearing for property insurance rate increase filings if they exceed a statewide average of 15 percent and if they are based on a computer model.