State Farm won't pull out of Florida after all. But homeowners shouldn't rejoice just yet. The insurance giant will raise residential-property premiums by 14.8 percent.
Florida Insurance Commissioner Kevin McCarty said Wednesday that an agreement struck with State Farm Florida will keep the company's operations in place, ending an 11-month legal stalemate over the insurer's announced plans to leave the state. As part of the deal, State Farm will also drop 125,000 policies.
The move affects State Farm policyholders as well as Floridians insured by other companies, consumer advocates and industry observers said.
The new 14.8 percent rate hike, approved by the state as part of the deal, will come on top of what amounts to a 28 percent average statewide rate increase stemming from the insurer's decision to end rate discounts. And because State Farm is the largest private property insurer in Florida, the deal struck with regulators could set a market standard and open the door for other insurers to raise rates, consumer advocates said.
Still, Gov. Charlie Crist and insurance industry groups celebrated the news. Crist, who has slammed insurers for doubling and tripling premiums in some cases after the 2004 and 2005 hurricane seasons, said he is "pleased" State Farm will stay.
It's better than "leaving those million in the lurch," he told the Orlando Sentinel editorial board Wednesday.
Bob Lotane, a spokesman for the National Association of Insurance and Financial Advisors, added: "This is indeed an early Christmas gift" for State Farm agents.
State Farm - which has about 1 million property insurance policies, including 810,000 residential policies - announced in January that it planned to leave the state's property insurance market because the premiums it collects aren't keeping pace with claims and other expenses. The news came weeks after McCarty and Division of Administrative Hearings Judge Daniel Manry rejected the company's proposed rate hike of 47 percent or 67 percent.
With the discount change and the rate deal struck Wednesday, many State Farm policyholders will end up paying close to the lower end of what the insurer initially proposed.
As part of the new agreement, State Farm conceded to McCarty's demand that the insurer's agents be allowed to move policies to other private insurers. That means the agents won't lose that business and the policies won't automatically be dumped into state-backed Citizens Property Insurance Corp.
The policies that will be cut are the riskiest, so South Florida policyholders may be hit hard.
But the moves will help "stem State Farm Florida's deteriorating financial condition...And for most of our customers it means that [the insurer] continues to be there for them," State Farm Florida President Jim Thompson said in a statement.
He said the insurer "still faces significant issues in order to meet its obligations to policyholders" and hopes for a "stable regulatory environment."
The company will start dropping policies Aug. 1 when they are up for renewal and will provide six months warning so customers have time to find a new insurer.
Luis Lobo, a Pembroke Pines State Farm policyholder, said Wednesday that he was pleased to learn the company is staying in Florida, but may consider changing insurers to avoid the rate hike. That's because the premium on his Pembroke Pines home rose 70 percent this year because of the discount change.
"It hurts but at the same token, it's great that a company like State Farm is going to stay," Lobo said.
McCarty said some insurers will still need rate hikes because they've lost more money on claims not related to hurricanes in recent years and because reinsurers - those providing catastrophe back up coverage - have raised their rates by about 15 percent because of the recession.
Backup coverage costs also increased because of a state law passed this year shrinking the state's reinsurance fund. The law also allows insurers to use a quicker process for passing certain reinsurance costs to customers.
In addition, many reinsurers are based abroad and their rates aren't regulated. Regulators said they still have concerns about the amount of backup coverage that State Farm purchases from its parent company.
McCarty said State Farm's rate proposal didn't include enough information otherwise he could have approved a smaller increase than what was proposed earlier.
Staff Writer Josh Hafenbrack contributed to this report.
Julie Patel can be reached at 954-356-4667 and jpatel@SunSentinel.com.Copyright © 2015, CT Now